Chapter2 Additional Insights

Chapter2 Additional Insights - Chapter 2 The Production...

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Chapter 2: The Production Possibility Model, Trade and Globalization In this chapter, focus on understanding production possibility curves, opportunity cost, comparative advantage, trade, and the consequent development of a market. As we saw in Chapter 1, because we have scarcity, we have to make choices since we cannot have more of everything. [By the way, another assumption in economics is that “more is better”. It is easier to focus on the quantitative aspects of resources than the qualitative aspects, so economists assume that quality is unchanging and constant and then focus attention on quantity.] The idea that we have to make choices implies that there are tradeoffs between resources. Economists sometimes show tradeoffs in a production possibility table and a production possibility curve (PPC). In this chapter, production possibility tables and curves are described. The important points are to note that in a production possibility table, as more of one good is obtained, less of the other good is obtained…that is, there is a tradeoff. As a result, the graphic depiction shows that a PPC is negatively sloped. Recall that opportunity cost is the loss of the next best alternative. If we choose more of one good, we must give up some of the other good. Opportunity cost is measured as the
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Chapter2 Additional Insights - Chapter 2 The Production...

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