RMB101 week 3

*Bowed-Out Shape of the PPF*

The result of specialization where the opportunity cost of producing one good over another is not constant, leading to a curve that is concave to the origin.

*Mutually Beneficial Trade Price*

The range where the price of trade must fall between the opportunity costs of both countries, which enables both countries to consume beyond their Production Possibility Frontier.

*Specialized Factor of Production*

A resource specifically designed or tailored for the production of particular goods or services, such as specialized machinery or a surgeon.

*General Factor of Production*

A resource that can be used across various industries and for the production of different goods and services, such as basic labor or raw materials like steel.

*Absolute Advantage*

The ability of one country to produce more of a good than another country using the exact same resources.

*Comparative Advantage*

The ability to produce a good at a lower opportunity cost than another country, which is the primary driver of international trade.

*Opportunity Cost (Slope of the PPF)*

The measure determined by the slope of the Production Possibility Frontier, showing the trade-offs between producing different goods.

*Country A's Opportunity Cost of 1 Manufactured Good (Calculation based on 9/45 ratio)*

1/5 Agricultural Good, which means Country A holds the comparative advantage in manufacturing.

*Country B's Opportunity Cost of 1 Agricultural Good (Calculation based on 60/30 ratio)*

2 Manufactured Goods, which means Country B holds the comparative advantage in agriculture.

*Impact of Specialization on Efficiency*

Specialization allows resources to be used more efficiently, which can lead to a higher overall output, potentially shifting the Production Possibility Frontier outward.

*Feasible But Inefficient (FBI) Production*

The area represented on the Production Possibility Frontier (PPF) where production is attainable but resources are not being fully or efficiently utilized.

*Goal of Free Trade*

To enable countries to consume more goods than they produce without needing additional resources or technological advancements.

*Profit-Maximizing Number of Workers (Marginal Analysis)*

The quantity of labor hired where the Marginal Revenue generated by the last worker is equal to or greater than the Marginal Cost of labor (the wage paid).

*Reason for Increasing Opportunity Cost with Specialization*

As production of one good increases, resources less efficient for that good must be reallocated, which leads to higher opportunity costs and a steeper trade-off.