EC120 Chapter Notes - Chapter 1-20: Opportunity Cost, Marginal Cost, Marginal Product

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18 Dec 2015
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1221 Study of how society manages its scarce resources
11Limited nature of society’s resources
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How People Make Decisions:
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How People Interact:
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How the Economy Works as a Whole:
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Rancher has an ';.-90'?E',0' in producing meat and potatoes
28'85Comparison among producers of a good
according to their opportunity cost
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Absolute Advantage: Comparison among producers of a good according to
their
productivity
Comparative Advantage: Comparison among producers of a good according
to their
opportunity cost
It is possible to have absolute advantage in both goods
It is impossible for one producer to have a comparative advantage in both
goods
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The gains from specialization and trade based on comparative advantage
When each person specializes in producing a good in which they have
comparative advantage, total production in economy rises
)12(0
For both parties to gain from trade, price at which they trade must lie
between two opportunity costs
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Group of buyers and sellers of a particular good/service
Buyers determine demand, sellers determine supply
22
Price and quantity determined by all buyers and sellers interacting in
the marketplace
28: Market with many buyers and sellers so that
each has a negligible impact on market price
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