ECON0100: Trade (Midterm 2)

production possibility frontier

a graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently

slope of PPF

the opportunity cost of one good in terms of the other

productively efficient

all points on the PPF

not productively efficent

all points below the PPF

not feasible

all points above/outside of the PPF

absolute advantage

ability to produce a larger quantity with the same resources (look at per unit)

comparative advantage

ability to produce at a lower opportunity cost than others

principle of comparative advantage

each individual should specialize in the activity where they have a comparative advantage

autarky

a situation in which a country does not trade with other countries

trade line

shows all the points the individual can consume after specialization and trade

gains from trade

people can get more of what they want through trade than they could if they tried to be self-sufficient

full specialization

each person specializes in the good whether they have a comparative advantage (kink)

import

Consume > produce

export

consume < produce

tangent

trade line is ____ to the PPF at the point of production.

import

PW < PA, excess demand

increases

Allowing imports _____ total surplus

export

PW > PA

increases

Allowing exports _____ total surplus