ECON 1020 Chapter 2: Chapter 2 The Economic Problem
31 Aug 2016
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Document Summary
Chapter 2 the economic problem: scarcity and choice. Capital-things produced and then used in production of services. Production-process that transforms recsources into goods and services. A single-person economy has many parallels to the real world, plane crash survivor. Opportunity cost- the best alternitave that we give up when making a choice. A two-person economy has an entirely new dimension, each person has their own desires and skills, two plane crash survivors on an island. David ricardo"s theory of comparative advantage-specialization of work will benefit all parties, example. One hunter and one gatherer can bring back enough food each to create a balanced diet and both will benefit the same, explained by graphs in econ textbook. Absolute advantage-advantage held when a producer can produce something using fewer resources than anyone else. Comparitave advantage- advantage held when a producer can produce a product at a lower opprotunity cost than anyone else.
