ECN106 Micro gains from trade

What is a cost benefit decision?

An action should be taken if, and only if, the benefit from taking the action is greater than the cost

What are sunk costs?

costs that can never be recovered

What is sunk cost fallacy?

people will continue to invest in a losing project simply because they are already heavily invested, even if it means risking more losses

What are exogenous variables?

variables that are not explained by a model

What are endogenous variables?

variables that are explained by models

What is a PPF?

Like

Dislike

A PPF is a graphical representation showing the maximum possible combinations of two goods or services an economy can produce with its available resources and technology

What is the comparative advantage?

When a country has a relatively lower opportunity cost of production of a good than another country

What is the absolute advantage?

Absolute advantage means that an economy can produce a greater total of goods for the same quantity of inputs

Why is the PPF smooth and concave?

Diminishing marginal returns, means that each input adds less to output than the previous input adds

What are gains from trade?

net benefits to all economic agents from entering in voluntary trade with each other.

When are gains from trade possible?

diversity in population, differences in skills or production etc