Chapter 2 1-15,20

Comparative Advantage-Lower opportunity cost than someone else Absolute Advantage-Lowest production cost Principle of Comparative Advantage-Everyone does best when each concentrates on the activity with the lowest opportunity cost -Concentrate on activities of lowest opportunity cost Opportunity Cost-What is given up in order to complete an alternate task Sources of Comparative Advantage -Talent -Natural Resources -Cultures or societal norms -Language -Institutions -Value placed on craftsmanship -Support for Entrepreneurship Production Possibilities Curve -A Graph of the combination of two gods that can be produced with given resources -Curve can be thought of as a frontier because it is impossible to produce beyond the line Unattainable Point- Beyond frontier Attainable Point- Inside Frontier Trade and specialization between people can help attain a higher total Gains from trade are higher when one person can specialize in each Production Possibilities for an Economy Intercepts show maximum production of one good Some Resources better at variable X and some are better at Variable Y Principle of Increasing Opportunity Cost Start with resources with lowest opportunity cost and move to higher Productivity decreases as its harder to obtain resources