Unit 2
| Word | Meaning |
|---|---|
| Production Possibilities Frontier (PPF) | A graph shows various combinations of output an economy can produce efficiently given its current resource endowment and technology. Shows the best an economy can do. Can be changed by: available resources, their productivity, changes to the available technology |
| Productive efficiency | Your economy's output is on PPF |
| Social efficiency | Your economy is producing what the society wants |
| Efficiency | Productive efficiency + Social efficiency |
| Comparative advantage | one can produce a good at a lower opportunity cost than someone else |
| Absolute advantage | one can produce a good more productively than someone else |
| Productivity | Produce the same quantity as someone else but use fewer resources |
| equity |
For any 2 goods X and Y (X is on the horizontal axis), the |slope of PPF| = opportunity cost of X
Opportunity costs (generally) increase as we produce more of a good.
If there is comparative advantage, specialize in the production of the good in which you have the comparative advantage, trade with each other and realize gains from trade.
Last update:
September 21, 2021
Created: September 18, 2021
Created: September 18, 2021