Econ Ch.2 study help - Economic Growth Increasing...

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Chapter 2: Capital: Things that are themselves produced and that are then used in the production of other goods and services. (Buildings, equipment, highways, etc…part of nations stock of capital) Theory of Comparative Advantage: Ricardo’s theory that specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers. Absolute Advantage: A producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources. Comparative Advantage: A producer has a comparative advantage over another in the production of a good or service if it can produce that product at a lower opportunity cost. Ex: Bill and Colleen (pg. 29) Production Possibility Frontier: Graph that shows the combinations of goods or services that can be produced if all of societies resources are used efficiently. Example: Shape of PPF* Negatively sloped (As more x is produced, less y is produced)* Diminishing Returns*
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Unformatted text preview: Economic Growth: Increasing technology, ppl, land, etc (total output and new resources) Technological progress in both X and Y: Only on X: Only on Y: Slope of PPF and O.C: Examples: Marginal Rate of Transformation (MRT): The value of the slope of a society’s PPF Command Economy: An economy in which a central government either directly or indirectly sets output targets, incomes, and prices. Laissez-faire economy: Economy in which individual ppl and firms pursue their own self-interests w/o any central direction or regulation. Market: The institution through which buyers and sellers interact and engage in exchange. Consumer Sovereignty: The idea that consumers ultimately dictate what will be produced (or not) by choosing what to purchase (and what not to purchase). Free Enterprise: The freedom of individuals to start and operate private businesses in search of profits....
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