tailieunhanh - Lecture Economics (9/e): Chapter 2 - David C. Colander

Chapter 2, The production possibility model, trade, and globalization. The objectives of this chapter are: Demonstrate trade-offs with a production possibility curve; relate the concepts of comparative advantage and efficiency to the production possibility curve; state how, through comparative advantage and trade, countries can consume beyond their individual production possibilities; explain how globalization is guided by the law of one price. | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Chapter Goals Relate the concepts of comparative advantage and efficiency to the production possibility curve Demonstrate trade-offs with a production possibility curve State how, through comparative advantage and trade, countries can consume beyond their individual production possibilities Explain how globalization is guided by the law of one price 2 The Production Possibilities Model An output is a result of an activity An input is what you put in a production process to achieve an output A production possibility table is a table that lists the trade-offs between two choices The production possibilities model can be presented both in a table and in a graph 3 The Production Possibilities Model It gives you a visual picture of the tradeoff embodied in a decision A PPC is created from a production possibility table by mapping the table in a two-dimensional graph A production possibility curve (PPC) is a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs 4 Increasing Opportunity Costs of the Trade-off Guns Butter Slope is flat at A This means there is a low opportunity cost to produce more guns A The principle of increasing marginal opportunity cost tells us that opportunity costs increase the more you concentrate on the activity B Slope is steep at B This means there is a high opportunity cost to produce more guns 5 Comparative Advantage A resource has a comparative advantage if it is better suited to the production of one good than to the production of another good The reason we must give up more and more butter as we produce more guns is that some resources are relatively better suited to producing guns, while others are relatively better suited to producing butter. 6 Efficiency Guns Butter Points of efficiency B Point of inefficiency Productive efficiency is achieving as much output as possible from a given amount of . | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Chapter Goals Relate the concepts of comparative advantage and efficiency to the production possibility curve Demonstrate trade-offs with a production possibility curve State how, through comparative advantage and trade, countries can consume beyond their individual production possibilities Explain how globalization is guided by the law of one price 2 The Production Possibilities Model An output is a result of an activity An input is what you put in a production process to achieve an output A production possibility table is a table that lists the trade-offs between two choices The production possibilities model can be presented both in a table and in a graph 3 The Production Possibilities Model It gives you a visual picture of the tradeoff embodied in a decision A PPC is created from a production possibility table by mapping the table in a two-dimensional graph A production possibility curve .