Study Guide - countries o Law Of Comparative Advantage –...

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29/01/2008 18:58:00 Introduction Define o Economics – economics is the study of allocation of the scarce  resources between alternative uses (Science Of Greed) o Non-Rival Goods – Goods that may be consumed by one consumer  without preventing simultaneous consumption by others (Stop Sign) o Non-Excludable Goods – when it is impossible to prevent people who  have not paid for it from enjoying its benefits. Define o Opportunity Cost – the opportunity cost of any action is the value of the  net best alternative sacrificed o PPF – A PPF is a graph that plots the maximum combinations of  goods that can be produced when all resources are employed and  used efficiently o Comparative advantage – a country has a CA in a good if it can  produce that good at a lower opportunity cost relative to other 
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Unformatted text preview: countries o Law Of Comparative Advantage – To maximize production, each nation should specialize in goods that it can produce at a lower opportunity cost relative to other nations ← ← How can one measure the opportunity cost of production using a PPF graph? • The slope of the PPF measures the opportunity cost of x ← ← Draw two PPF’s, one steeper and one flatter. Which country has the lower opportunity cost for producing the good on the horizontal axis? Use diagram to illustrate your answer. **For equal changes in x, less y is sacrificed in Economy B, thus, B has a lower opportunity cost for x. Given you answer in problem three, which country will specialize in the production of Y? 29/01/2008 18:58:00...
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This note was uploaded on 04/07/2008 for the course ECO 112 taught by Professor Tolin during the Spring '08 term at West Chester.

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Study Guide - countries o Law Of Comparative Advantage –...

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