Ecn Ch 2

Front 1

Profit

Back 1

Profit = (revenue)-(cost)-(opportunity cost)

Compared to ACG which excludes opp. cost.
Therefore ACG profit will always be higher

Front 2

Absolute Advantage

Back 2

If a person can produce more of a specific good than the other person.

Has no bearing on whether or not the two parties should trade.

Front 3

Production Possibility Frontier

Back 3

Shows the maximum amount of one good that can be produced for any given production of the other.
EX> Comparing corn and wheat on one graph

Front 4

Efficient VS Inefficient Points

Back 4

Efficient> on a PPF, the point where you cannot produce more of both products.

Inefficient> A point on the graph where it is possible to make more of both products.

Not Possible> A point on the graph at which production cannot be possible with the amount of resources.

Front 5

Economic Growth

Back 5

More resources are available. This can be due to to an increase in technology, better training of employees, greater investment in capital goods (machinery) or population growth.

Front 6

Comparative Advantage

Back 6

When an individual has a lower opportunity cost of producing a certain good than other people.

When the opportunity costs are different between the two parties then one person cannot have CA over both products in a 2 person economy.

Front 7

The Law of Increasing Opportunity Costs

Back 7

As production of a product increases, the cost to produce an additional unit of that product increases as well.

This is illustrated through the slope of the PPF

Front 8

Gains from Trade

Back 8

Mutual gains that individuals can achieve by specializing in different things and trading.

There are gains from trade even if one person doesn't have a specialization.

Front 9

Specialization

Back 9

Focusing mainly on the task that you are good at.