Macroeconomics Chp 3: PPF – Flashcards
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People should specialize according to
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comparative advantage
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True or False: one person can have the absolute advantage in both goods
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True
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True or False: one person can have the comparative advantage in both goods
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False
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True or False: To find absolute advantage, you need a calculator
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False (can get by just looking at the graph)
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If each agent has an absolute advantage over one good
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then they each should have the competitive advantage over that good
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What should a person specialize according to?
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Comparative Advantage
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Absolute Advantage
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ability to produce a good using fewer inputs than another producer
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Comparative Advantage
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ability to produce a good at a lower opportunity cost than another producer (reflects the relative opportunity cost)
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How many goods does a Production Possibility Frontier deal with?
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2 goods
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Production Possibility Frontier
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graph that calculates total resources
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After calculating the opportunity cost on a PPF, is your answer a quanity or a resource?
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quantity
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Why do you calculate the opportunity cost from a PPF?
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To find what agent should specialize in which good
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Ex: If you are calculating the opportunity cost for potatoes, where would you put the potatoes? (deals with equation)
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Denominator
