Download Economics Terms: Production Possibility Boundary, Comparative Advantage, and Trade and more Quizzes Economics in PDF only on Docsity!
Production Possibility Boundary (PPF)
a graph that shows the combinations of 2 commodities that can be produced given a fixed level of technology and and resources being used efficiently at a fixed point in time. TERM 2
Zero Sum Game
DEFINITION 2 trade isn't a zero sum game, participants gain or loss is balanced exactly by the losses or gains of the other. When individuals engage in a volunatry exchange both parties are made better off, TERM 3
Trade Creates Value
DEFINITION 3 By channeling goods and resources to those who value them most, trade creates value and increase the wealth created by society's resources. TERM 4
Transaction Costs
DEFINITION 4 can inhibit trade. For example the time, effort, and other resources needed to search out, negoiate, and complete an exchange. TERM 5
Comparative Advantage and Absolute
Advantage
DEFINITION 5 Comparative: if you have the lowest opportuity cost of producing something. Absolute: if you can produce more of a good with the same amount of resources as someone else (due to previous experience and or natural endowments)
Law of comparative Advantage
In economics, the law of comparative advantage is the idea that a nation is better off when it produces goods and services for which it has a comparative advantage. individuals, firms, regions, or nations can gain by specializing in the production of goods they produce cheaply (at a low opp cost) and exchanging them for goods they can't produce at a low opp cost TERM 7
The tragedy of the commons
DEFINITION 7 The tragedy of the commons is a dilemma arising from the situation in which multiple individuals, acting independently, and solely and rationally consulting their own self-interest, will ultimately deplete a shared limited resource even when it is clear that it is not in anyone's long-term interest for this to happen. (extinction) *Problem of overuse of a resource when property rights are not clearly established TERM 8
Three allocation questions the economy
answers
DEFINITION 8
- What and how much to produce 2. How to produce it 3. For whom to produce it TERM 9
Why has there been movement in both
directions on the economic system spectrum?
DEFINITION 9 Equity (fairness)-normative Efficiency-positive TERM 10
In the US business decide what to produce
based primarily on...
DEFINITION 10 what they believe will sell
