Microeconomics 1st Exam

absolute advantage

if you can complete a task using fewer resources than anyone else

comparative advantage

if you have a lower opportunity cost of completeing a task than another person

the principle of comparative advantage

states that productivity is maximized when each person or country concentrates on the activities which his or her opportunity cost is lowest.

why specialization and trade?

comparative advantage determines specialization. Each person or country should specialize in the task in which they have a comparative advantage. The people or countries should then trade with one another for those goods in which they do not have a comparative advantage.

production possibilities curve

shows the maximum amount of two goods that can be produced given the personn or country’s productivity and resources.

Scarcity Principle

having more of one good thing usually means having less of another.

attainable points (on a production possibilities curve)

points that are inside or on the production possibilities curve

unattainable points (production possibilities curve)

points that lie outside the production possibilities curve.

efficient points

points that are on the production possibilities curve; points inside are inefficient points.

The Principle of Increasin Opportunity Cost (AKA: the Low-Hanging-Fruit Principle)

to increase total productionn in a society, a person or country should first employ those resources with the lowest opportunity cost, and only afterward turn to resources with higher opportunity cost.

why might a production possibilities curve shift

1) a person or country migh acquirem more resources such as human capital, physical capital, or natural capital.

2) the person or country might increase its productivity holding its resources fixed.