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22econ2030 - ECONOMIC GROWTH-over time one would expect...

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ECONOMIC GROWTH -over time one would expect various structural changes to occur- both good and bad -An economy might also endure negative circumstances (war, storm damage, supply shock) that impairs production -As one should expect this would force the PPF inward TRADE -The act of exchanging goods….. If the PPF demonstrates what is possible for each party given their own abilities and resources Then when comparing individual PPF’s it may be determined if some would benefit from trade Lets do a graph When comparing production abilities, advantages between parties may be discovered An Absolute Advantage is most obvious. That is, one party can produce more of a good than the other party. Sometimes one may hold an absolute advantage in both goods. Holding an absolute advantage in one good or both goods does not, however, mean trade would not be beneficial A comparative advantage will arise when party “A” enjoys a lower opportunity cost for a given good than party “B” In other words “A” faces a trade off for production of the good having a lesser consequence than does “B”. while “A” may not produce more, what it does produce comes at less of a cost (in terms of one good for another) than does “B” Therefore, if choosing one good entails a higher opportunity cost for “B”, then “B” will produce the other good and trade with “A” for the first. Thus, the decision to trade is determined not by who holds an absolute advantage, but who holds the competitive advantage Trading will occur in quantities only such that the final mix enables a consumption level beyond the original PPF of both parties
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There is no point in trading if it leaves either party worse off CH 4 SUPPLY AND DEMAND SUPPLY AND DEMAND: THE BASIC CONCEPT Those who got it and those who want it
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