ch02 The Economic Problem Scarcity and Choice.pptVIP

Prepared by: Fernando Quijano Shelly Tefft;;? FIGURE 2.1 The Three Basic Questions;capital Things that are produced and then used in the production of other goods and services. ;inputs or resources Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants.;Nearly all the same basic decisions that characterize complex economies must also be made in a simple economy. ;The concepts of constrained choice and scarcity are central to the discipline of economics.;The growth of the frozen dinner entrée market in the last 50 years is a good example of the role of opportunity costs in our lives. Many entrepreneurs find that the simple tools of economics—like the idea of opportunity costs—help them anticipate what products will be profitable for them to produce in the future.;theory of comparative advantage Ricardo’s theory that specialization and free trade will benefit all trading parties, even those that may be “absolutely” more efficient producers.;? FIGURE 2.2 Comparative Advantage and the Gains from Trade;absolute advantage A producer has an absolute advantage over another in the production of a good or service if he or she can produce that product using fewer resources.;? FIGURE 2.3a Production Possibilities with No Trade;? FIGURE 2.3b Production Possibilities with No Trade;? FIGURE 2.4 Colleen and Bill Gain from Trade;We trade off present and future benefits in small ways all the time.;consumer goods Goods produced for present consumption.;production possibility frontier (ppf) A graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently. ;All points below and to the left of the curve (the shaded area) represent combinations of capital and consumer goods that are possible for the society given the resources available and existing technology. Points above and to the right of the curve, such as point G, represent combin