CHAPTER 2 - Specialization & Exchange

Absolute Advantage

The ability to produce more output with the same resources

Comparative Advantage

The ability to produce a good with a lower opportunity cost

What is the formula for Opportunity Cost?

what you give up / what you gain

What is the formula for Opportunity Cost of Goof A?

units given up of good B / units gained of good A

When does the PPF rotate?

When a change affects the ability to produce only one good 

When does the PPF shift?

When a change affects the ability to produce both goods

Law of Increasing Opportunity Cost

As you produce more of one good, you have to give up more and more of the other good

A point on the PPF is what?

Attainable and Efficient

A point inside the PPF is what?

Attainable and Inefficient

A point outside the PPF is what?

Unattainable

What is the opportunity cost of one problem set?

0.25 papers

What is the opportunity cost of writing one paper?

4 problem sets