ECON 211 Chapter Notes - Chapter 2: Opportunity Cost, Absolute Advantage, Comparative Advantage

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Invisible hand: global production line is a natural outcome of people everywhere acting in their own self-interests to improve their own lives (coordination mechanism) Goods are produced by the country, company, person with the lowest opportunity cost for producing that good. Countries trade with one another to get the combination of goods they want to consume. The resulting gains of trade are split up so everyone ends up better off. Ef cient points: points that lie on the frontier; combinations of production possibilities that squeezes the most output possible from available resources points that lie within are inef cient because they do not use all the available resources. Population growth leads to the shifting of the entire frontier outward. Improved technology means producing more causing a pivot outward of the frontier. Absolute advantage: the ability to produce more of a good or service than others can with a given amount of resources: ex.

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