ECO- Chapter 3: Production Possibilities Frontier and Comparative Advantage
ECO- Chapter 3: Production Possibilities Frontier and Comparative Advantage Eco2023
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This 2 page Class Notes was uploaded by Cara Johnson on Wednesday September 16, 2015. The Class Notes belongs to Eco2023 at Florida State University taught by Dr. McCaleb in Fall 2015. Since its upload, it has received 97 views. For similar materials see Microeconomics in Economcs at Florida State University.
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Date Created: 09/16/15
ECO 2023 Principles of Microeconomics T McCaleb Chapter 3 Production Possibilities Frontier amp Comparative Advantage Production possibilities frontier PPF The boundary that separates the combinations of goods and services that can be produced and the combinations that cannot be produced with the given resources Separates attainable from unattainable Full employment of resources vs Unemployment of resources Points B C and D are attainable and have full employment of resources Point A is attainable but has unemployment of resources Point X is unattainable with the given amount of resources Uuantity of Guns Produced Uuanljty of Elutter Produce2 TradeOffs Substituting one good for another When moving from one point to another a tradeoff exists If you move from point D to point B a quantity of butter produced must be given up to gain in quantity of gum produced Important information about PPFs 1 PPFs do not show where the economy is at it does not represent actual production it shows the maximum potential for an economy 2 Changes in employment and unemployment do not affect the curve a Changes do not shift the entire curve only moves to different points on the curve Shifters of the PPF 1 Technology available generally does not decrease 2 Change in available resources 3 Changes in the labor force Types of Resources 1 Capital real items such as machines and buildings 2 Land includes all natural resources 3 Labor force employed unemployed Comparative Advantage Absolute advantage The ability to produce more of a good or service with the given amount of resources in a given amount of time Compa rative Adva ntage The ability to produce a good or service with the lowest opportunity cost Specializing in production of goods for which the opportunity cost is low Not producing those with high opportunity costs Exchanging the goods they provide for the goods they wish to consume A person state region or country can have absolute advantage in everything A person state region or country cannot have comparative advantage in more than one thing Every person state region or country has a comparative advantage in something
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