ECON-100 FA4 Chapter Notes - Chapter 2: Corn Laws, Absolute Advantage, Physical Capital
Document Summary
Purpose is to improve our understanding of trade-offs by considering a simplified economy that produces only two goods: the frontier: the line in the diagram that shows the possible maximum quantity of a product. Full employment (1) where all available resources are being used; points on the line. Production points (1) if a production point lies inside or on the frontier, it is feasible (2) if a p(cid:325)oductio(cid:290) poi(cid:290)t lies outside the f(cid:325)o(cid:290)tie(cid:325), it is(cid:290)"t feasible: helps us understand aspect of the real economy: Workers are efficient in producing both products, raw materials availability) (3) always a negative trade off; give up in order to gain (4) when production possibility frontier is curved (a) the opportunity costs are increasing (i) Economists believe that in reality opportunity costs are typically increasing because as more of a good is produced, its opportunity cost typically rises because well-suited materials are used up and less adaptable ones must be used instead.