Economics 1021A/B Lecture Notes - Capital Accumulation, Technological Change, Absolute Advantage
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Economics – Lecture #4
The expansion of production possibilities—and increase in the standard of living—is
called economic growth.
Two key factors influence economic growth:
Technological change is the development of new goods and of better ways of producing
goods and services.
Capital accumulation is the growth of capital resources, which includes human capital.
The Cost of Economic Growth
To use resources in research and development and to produce new capital, we must
decrease our production of consumption goods and services.
So economic growth is not free.
The opportunity cost of economic growth is less current consumption.
Gains From Trade
Comparative Advantage and Absolute Advantage
A person has a comparative advantage in an activity if that person can perform the
activity at a lower opportunity cost than anyone else.
A person has an absolute advantage if that person is more productive than others.
Absolute advantage involve comparing productivities while comparative advantage
involves comparing opportunity costs.
To reap the gains from trade, the choices of individuals must be coordinated.
To make coordination work, four complimentary social institutions have evolved over the
A firm is an economic unit that hires factors of production and organizes those factors to
produce and sell goods and services.
A market is any arrangement that enables buyers and sellers to get information and do
business with each other.
Property rights are the social arrangements that govern ownership, use, and disposal of
resources, goods or services.
Money is any commodity or token that is generally acceptable as a means of payment.
Markets coordinate individual decisions through price adjustments.