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econ review 1 - Economics How individuals make choices...

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Economics: How individuals make choices under conditions of scarcity Normative theory: analysis based on a person norms, ethics. Pushing someone’s views Positive theory: analysis based on facts PPF: production possibilities frontier model: shows the maximum combinations of two goods that can be produced with a given set of resources and technology -resources: land, labor, capital Scarcity: we don’t have the capability of production outside the ppf. Because of scarcity every choice we make involves giving up something Opportunity cost: how much of the highest valued alternative must be given up to get 1 additional unit of a good Increasing opportunity cost: having to give up ever increasing amounts of 1 good to get one more unit of another Absolute advantage: an ability to produce a good using pure resources ( comparing two of the same goods, two countries) Autarky: absence of trade Comparative advantage: the ability to produce a good at a lower opportunity cost (comparing two goods one country)
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