Economics 1021A/B Lecture Notes - Capital Accumulation, Technological Change, Absolute Advantage

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Michael Parkin

Document Summary

The expansion of production possibilities and increase in the standard of living is called 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. To use resources in research and development and to produce new capital, we must decrease our production of consumption goods and services. The opportunity cost of economic growth is less current consumption. 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 centuries: