Microeconomics Ch. 3-4

the ability of one person or nation to produce a product at a lower resource cost than another person or nation
- related to efficiency / economy size
- does not motivate specialization / exchange

All points of the line satisfy the equation 1X+2Y=(1)(2); plug in x / y to find the position on the line

the ability of one person or nation to produce a good at a lower opportunity cost than another person or nation
- motivates specialization and exchange

when a country responds to comparative advantage by JUST making that one thing

a voluntary exchange between two people makes both people better off

1. repetition (the more times a worker performs a task, the more proficient he becomes)
2. continuity (no time spent switching tasks)
3. Innovation (specialized workers gains insights into tasks that lead to better production methods)

The factor that determines ideal specialization and exchange and which leads to comparative advantage
- Differences in productivity result from innate skills and benefits associated with division of labor

a product produced in a foreign country and purchased by residents of the home country

a product produced in the home country and sold in another country

AKA offshoring - when a domestic firm shifts part of its production to a different country

economy in which people specialize and produce goods and services in markets

facilitates market economies by specifying terms of exchange and allowing for exchange between strangers

facilitates market economies by reducing the risk entrepreneurs face

facilitates market economies by increasing the profitability of inventions, encouraging firms to develop new products and production processes

facilitates market economies by providing potential investors with reliable information about the financial performance of a firm

VS Market economy; an economy in which a government bureaucracy decides how much of each good to produce, how to produce the good, and who gets the good