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Cost and Production

Cost and Production - generally increases e Consumer...

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Cost and Production 1. Productive advantages a. The production possibilities frontier: the combinations of various goods that can be produced given available resources and technology. b. Absolute Advantage: an individual has an absolute advantage in the production of a good if that individual can produce more than others in the same time or can produce the same amount as others in less time. c. Comparative advantage: an individual has a comparative advantage in the production of a good if that individual can produce the good at lower cost than others. i. There are gains from exchange to be realized through specialization. d. Principle of increasing opportunity cost: as the production of one good increases, the opportunity cost of producing another unit (marginal cost) of producing that good
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Unformatted text preview: generally increases. e. Consumer surplus: the amount above the price paid that a consumer would willingly spend, if necessary, to acquire the units purchased f. Producer surplus: the amount producers receive upon selling the units above the costs of producing the units g. Deadweaight loss: the cost to society of not operating efficiently h. Efficiency: the absence of waste. Efficiency is obtained where the MC of production equals the MV of consumption (i.e. at the market-clearing price and quantity) i. Welfare: commonly, the sum of consumer and producer surplus. Defined this way, welfare is maximized in the perfectly competitive markets. j. “they have a higher gdp in California” 2. Society’s production choice 3. Marginal cost and supply 4....
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