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Trade Notes

by: Aakash Lulla

Trade Notes ECON 1001

Aakash Lulla
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About this Document

These notes cover the topic of trade as discussed in lessons.
Intro to Microeconomics
Michael Jones
Class Notes
trade, PPF's




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This 2 page Class Notes was uploaded by Aakash Lulla on Sunday September 18, 2016. The Class Notes belongs to ECON 1001 at University of Cincinnati taught by Michael Jones in Fall 2016. Since its upload, it has received 94 views. For similar materials see Intro to Microeconomics in Economics at University of Cincinnati.


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Date Created: 09/18/16
TRADE The Production Possibilities Frontier (PPF) A graph that shows the combinations of two goods that an economy can possibly produce given the available resources and the available technology. The PPF illustrates the concepts of tradeoff and opportunity cost, efficiency and inefficiency, and economic growth. • The opportunity cost of an item is what must be given up in order to obtain that item. • Moving along a PPF involves shifting resources (e.g., labor) from the production of one good to the other. • Society faces a tradeoff - getting more of one good requires sacrificing some of the other. • The slope of the PPF tells you the opportunity cost of one good in terms of the other. The Bow Shaped PPF As the economy shifts from one resource to another: - The PPF becomes steeper. - The opportunity cost increases. Principle of Increasing Opportunity Cost: - Start with resources with lowest opportunity cost. - Move to those with the next highest opportunity costs. Economic Growth shifts the PPF outwards. * The following factors can shift the PPF Curve: • Increase in Natural Resources • Technological Improvements • Higher Education • Population Growth Exports: goods that are produced domestically and sold abroad. Imports: goods that are produced abroad and sold domestically. Absolute advantage: is the ability to produce the same amount of a good with fewer inputs than another. Two countries can gain from trade when each specializes in the good it produces at lowest cost. Comparative advantage: is the ability to produce a good at a lower opportunity cost than another producer.


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