question
what is the PPF?
answer
the production possibilities frontier
question
where on the PPF do we find efficiency? inefficiency?
answer
efficient: on the PPF
inefficient: inside the PPF
inefficient: inside the PPF
question
how do we find opportunity cost using the PPF?
answer
opportunity cost of the good along the x-axis is the SLOPE
opportunity cost of the good along the y-axis is the INVERSE of the slope
opportunity cost of the good along the y-axis is the INVERSE of the slope
question
what is allocative efficiency?
answer
the point on the PPF where goods are produced at the lowest possible cost and the greatest possible benefit
marginal benefit = marginal cost
because although all the points on the PPF may be efficient, they don't all make the most sense
marginal benefit = marginal cost
because although all the points on the PPF may be efficient, they don't all make the most sense
question
how is marginal cost related to the PPF?
answer
it increases with the slope of the PPF
question
what is the principle of decreasing marginal benefit?
answer
the more we have of something, the smaller its marginal benefit and the less we are willing to pay for one more of it
question
what is the principle of increasing marginal cost?
answer
the more we have of something, the greater its marginal cost
question
what is the opportunity cost of future increases in production?
answer
a decrease in today's production
question
when do I have a comparative advantage?
answer
when I can perform an activity at a lower opportunity cost than my friend
question
when do I have an absolute advantage?
answer
when I can produce more of something than my friend, given the same time and resources
question
what is the low-hanging fruit principle?
answer
the least costly resources will always be used first by producers
question
how does the low-hanging fruit principle apply to the PPF of two goods that use different resources?
answer
the PPF will be bowed out because the use of the most costly resources corresponds to the steepest slopes
question
what happens to the PPF when more resources are made available?
answer
a parallel outward shift
question
what is the opportunity cost of increasing one good at a point inside the PPF?
answer
there is no opportunity cost because resources are not being used at the expense of the other good
question
if I know that the opportunity cost of 30 coconuts is 40 crabs, then how can I find the opportunity cost of 1 coconut?
answer
cross-multiplication!
30/1 = 40/?
40/30 = ? = 4/3
30/1 = 40/?
40/30 = ? = 4/3
question
how do I draw a joint PPF?
answer
y-intercept: add up the number of the good on the y-axis if all the producers are only making that good
x-intercept: add up the number of the good on the x-axis if all the producers are only making that good
kink: the x-coordinate is the number produced by the specialist in the x good
the y-coordinate is the number produced by the specialist in the y good
number of kinks = number of producers - 1
x-intercept: add up the number of the good on the x-axis if all the producers are only making that good
kink: the x-coordinate is the number produced by the specialist in the x good
the y-coordinate is the number produced by the specialist in the y good
number of kinks = number of producers - 1
question
who should specialize in a good during trade?
answer
the person with the comparative advantage in that good (aka the lowest opportunity cost)
question
how do I find an exchange rate?
answer
pick any value between each producer's opportunity cost for each good
question
how do i draw a CPF?
answer
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