Production Possibility and Trade

These flashcards cover key concepts related to production possibility theory, opportunity costs, trade, and market structures based on the provided lecture notes.

Production Possibility Curve (PPC)

A graph showing the maximum feasible amounts of two goods that a producer can produce given available resources and technology.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision; what is given up to obtain something else.

Absolute Advantage

The ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another producer.

Specialization

The process of concentrating on and becoming highly skilled in a particular kind of production or task.

Term of Trade

The ratio at which two countries agree to trade their exports for imports; it needs to fall between the opportunity costs of both parties.

Gains from Trade

The increase in total welfare and output that arises when countries specialize and trade based on their comparative advantages.

Net Exports

The value of a country's exports minus the value of its imports; it indicates whether a country has a trade surplus or deficit.

Trade Deficit

A situation in which a country's imports exceed its exports, resulting in a negative balance of trade.

Trade Surplus

A situation in which a country's exports exceed its imports, resulting in a positive balance of trade.

Market Equilibrium

A situation in which supply and demand are matched and prices stable.

Monopoly

A market structure where a single seller controls the entire market supply of a good or service.

Perfect Competition

A market structure characterized by a complete absence of rivalry among the individual firms; all firms sell homogeneous products.

Monopolistic Competition

A type of market structure where many firms sell products that are substitutes but not perfect substitutes.

Oligopoly

A market structure in which a small number of firms have the majority of market share, leading to limited competition.