Chapter 2 - we produce more and more of the good. Capital...

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Chapter 2 Opportunity cost - of one activity is the value of the next-best alternative. Production possibilities frontier - is a graphical representation of the combinations of outputs that can be produced, if all of the available resources are used as well as possible. It can be a straight-lined graph (both products use same resources and technology) or curved (not the same resources and technology). The law of increasing opportunity cost - (also known as the Principle of Increasing Opportunity Cost)- says that the opportunity cost of producing one additional unit of a good will increase, as
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Unformatted text preview: we produce more and more of the good. Capital investment- the real, long-lasting, man-made inputs into the production process, such as factories, pieces of equipment, computers, and office buildings. Absolute advantage- one person has it over another person, if he can produce a given output using fewer resources than the other person. (Only compares a single activity). Comparative advantage- an individual has it in an activity if his opportunity cost of that activity is lower than the opportunity cost of that activity for anyone else. (Need to compare at least 2 activities)....
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This note was uploaded on 12/04/2011 for the course EC 201 taught by Professor Haider during the Fall '10 term at Michigan State University.

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