ECON-2006EG Study Guide - Quiz Guide: Absolute Advantage, Opportunity Cost, Protectionism

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Chapter outline: the production possibilities curve, the basis for trade: comparative advantage, trade between states, trade between countries, arguments against free trade. The underlying motivation for trade relies on one simple principle: we can all be better off by trading with one another, because trade allows total production to be maximized. The production possibility curve (ppc) tells us how much we can produce from existing resources and technology. It shows the relationship between the maximum production of one good for a given level of production of another good. If you work 8 hours a day you can do 8 websites or 16 computer programs. The points b and d on the graph are both attainable and efficient because you make the full of your resources. Point a is attainable, but not efficient because you make not the full of your resources. Point b is unattainable, because you have not enough resources.

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