Production Possibility Frontier
Production Possibility Frontier 101
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This 1 page Class Notes was uploaded by Samantha jose on Saturday February 6, 2016. The Class Notes belongs to 101 at Washington State University taught by Dr. Love in Fall. Since its upload, it has received 41 views. For similar materials see Microeconomics in Economcs at Washington State University.
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Date Created: 02/06/16
Production Possibility Frontier Production Possibility Frontier (PPF) • The PPF is a diagram that shows the combination of two goods that are possible for a society to produce at full employment. Opportunity Cost: what must be given up in order to get a good • Example: each small jet has an opportunity cost of three-fourths of a Dreamliner o Opportunity cost of a small jet in terms of Dreamliner’s given up = rise/run • Production Possibility Dreamliners Small Jets 30 0 15 20 9 28 0 40 Comparative advantage & gains from trade • The logic of specialization and comparative advantage: o It makes sense to produce the things you’re especially good at producing and buy from other people the things you aren’t as good at producing § Ex: The US imports bananas from Ecuador David Ricardo (1772-1823) • Argued against Corn Laws in British Parliament o Corn Laws: high tariffs on imported grain that protected British landowners o His Theory of comparative advantages is still the ideological foundation for free trade Comparative advantage and gains from trade • A country has comparative advantage in producing goods for which it has the lowest opportunity cost Absolute Advantage: • A country can produce more output per worker than other countries
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