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

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