Chapter 2 Notes Principles Of Microeconomics

Chapter 2 Notes for Econ 1A Absolute advantage – Person A has an absolute advantage over Person B if A takes fewer hours to perform a task than Person B Comparative advantage – Person A has a comparative advantage over Person B, if A’s opportunity cost is lower than Person B’s Opportunity cost – the value you have to give up in order to undertake the activity Production possibilities curve – a graph that describes the max amount of one good that can be produced for every possible level of production of the other goods Attainable point – any combination of goods that can be produced using currently available resources Inefficient point – any combination of goods for which currently available resources enable an increase in the production of one good without reduction in producing the other good Gains from specialization and exchange -

increases total output

Facts that shift the economy’s PPC -In the short run, to increase one good, the other good decreases -in the long run, production of all goods can be increased factors that enhance long-run economy growth will shift the PPC outward -population growth -invest in new capital goods (like machines or factories) -improvement in knowledge and technology benefit of free trade – specialization increases total output among natives -as a result – the amount of goods and services available to consumers will increase some oppose free trade because – specialization causes less productive domestic industries may decline -workers in declining industries may lose their jobs