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outline_2 - - meaning: lowest opportunity cost- how to read...

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Chapter 2 A. Production Possibility Frontier 1. Meaning of points on, inside and outside the line 2. Slope a. Meaning: opportunity cost b. Calculation c. Nonlinearity (bowed out) - Increasing opportunity cost - Why? B. Specialization and Gains from Trade 1. an example: you and your neighbor a. calculation of the gains compare autarky and consumption after trade 2. To understand why there is a gain a. Absolute advantage - meaning: highest productivities - how to read from graph: intercept b. Comparative advantage
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Unformatted text preview: - meaning: lowest opportunity cost- how to read from graph: slope c. Basis of trade- Comparative advantage: Each country specializes in producing the good in which she has comparative advantage- Trading price must be between the two opportunity costs 3. more examples: outsourcing of U.S. industries C. The Market System 1. Term: Product market, Factor market, Factor of production 2. Circular flow diagram 3. The market mechanism: invisible hand...
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