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BU204_03_Johnson_Jennifer_Unit_2_Homework prof corrections

BU204_03_Johnson_Jennifer_Unit_2_Homework prof corrections...

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Jennifer Johnson Kaplan University BU204- 03 Macroeconomics Anthony Brogna Unit 2 October 24, 2010
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Key Terms – Definitions Production Possibility Frontier illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity produced of the other” (Krugman & Wells, 2009, p. 25). Based on the information the “ Production Possibility Frontier” is a curve that compares the tradeoffs between two goods produced by an economy in order to demonstrate the efficient use of resources . Points along the curve are considered efficient and obtainable, and show the maximum amount of one good that can be produced in relation to another. Points within the curve are considered obtainable but inefficient. Points outside the curve are considered impossible to obtain. Good! Comparative Advantage “a model that clarifies the principle of gains from trade—trade both between individuals and between countries” (Krugman & Wells, 2009, p. 25). To me “ Comparative Advantage” is explaining why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. What matters is not the absolute cost of production, but rather the ratio between how easily the two countries can produce different kinds of things. No, if you are giving up a high wage activity by cooking and someone else is unemployed, no matter how good you are at cooking the other person should cook as your opportunity cost is higher.
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