Increasing opportunity costs are everywhere if we

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INCREASING OPPORTUNITY COSTS ARE EVERYWHERE
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If we produce at: 1.point J - 2.point L - We produce: 1.only cell-phone factories and no cell phones 2.only cell phones and no cell-phone factories. And every year, consumption remains at 5 million cell phones. ECONOMIC GROWTH
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If we cut production: of cell phones to 3 million this year We can produce: 2 cell-phone factories at point K. Then next year, 1.Our PPF shifts outward because we have more capital. 2.We can consume at a point outside our original PPF , such as K '. ECONOMIC GROWTH
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Guns versus butter is the classic economic tradeoff. “Guns” stand for defense goods and services. “Butter” stands for all other goods and services. Until recently, the U.S. economy has been producing more guns and less butter. Guns Versus Butter ??? Already forgotten what a trade off is ???
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The figure shows the change in the quantity of defense goods and services produced. Guns Versus Butter It increases in times of war and decreases in times of peace.
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During the 1990s, U.S. production possibilities were shown by PPF 0 . President Reagan raised the stakes in the Cold War and the United States was producing at point A . By mid-1990s, the United States enjoyed a peace dividend and production moved to point B. Guns Versus Butter
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During the next decade, production possibilities expanded to PPF 1 . The United States could have kept defense production constant and moved to point C . But after 9/11, defense production increased and the United States moved to point D . Guns Versus Butter
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Ed. 5
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Hong Kong’s Rapid Economic Growth In 1960, Hong Kong’s production possibilities were 25 percent of those in the United States. In 1960, the United States and Hong Kong produced at point A on their respective PPF s.
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Hong Kong’s Rapid Economic Growth Hong Kong allocated more resources to producing capital goods than the United States did. And by 2008, Hong Kong’s PPF was 80 percent of U.S. PPF .
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Hong Kong’s Rapid Economic Growth If Hong Kong continues to produce at a point like B , allocating more resources to producing capital goods, it will grow more rapidly than the United States.
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Hong Kong’s Rapid Economic Growth But if Hong Kong produces at a point like D , its economic growth rate will slow.
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Ed. 5
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SPECIALIZATION AND TRADE Comparative Advantage A bility of a person to perform an activity or produce a good or service at a lower opportunity cost than someone else. Absolute Advantage S ituation in which one person is more productive than another person in several or all activities .
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SPECIALIZATION AND TRADE [example] Liz and Joe own smoothie bars They each produce and sell smoothies and salads Let’s look at each of their current situations
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Liz's opp. cost of producing
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Christopher Reinemann
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