UNIT 7: Absolute and Comparative Advantage

Absolute Advantage
*Who can produce more with the same resources
*Who can produce most output with less resources
*Example: Production of 100 vs. 20
-Papa Johns has an absolute advantage over pizza that McDonald's

Comparative Advantage
*Who can produce with the lowest opportunity cost

Productivity
Output problem: what they give up vs. what they produce
Output Examples:
-Ton/Acre
-Miles/Gallon
-Word/Minute
-Apples/Tree
-Computers Produced/Hour

Input problem: input that is dedicated to the chosen item/ input dedicated to the forgone item
Input
Examples:
-# of Hours to do a job
-# of Gallons of Paint to Paint a house
-# of Acres to feed a horse

Comments

Unit 1 - Business Cycles

Business Cycles --Fluctuation in economic activity that an economy experiences over a period of time -1 cycle from trough to trough -Avrg. Cycle is 5-7 yrs -Recession lasts ~ 14 months -Peaks & Troughs are meaningless b/c we never know we are in one until its over - Trough: end of a recession -if recession loses >10% of real GDP, then it is a depression Expansion - period of high (real) GDP and high employment Peak - highest point just before the unemployment rate rises Contraction - ( Recession ) real GDP decreases in a contraction period ad unemployment rises Trough - our lowest point (often called depression)

UNIT 3: Consumption and Savings

Disposable Income (DI) *Income after taxes or net income DI = Gross income - Taxes 2 Options *w/ DI, households can either -consume (spending money on goods & services) -save (not spend money on goods & services) Consumption *household spending *The ability to consume is constrained by -amount of DI -propensity to save *Do households consume if DI=0 ? -Autonomous consumption -Dissaving APC = C/DI = % DI that is spent Saving *Household NOT spending *The ability to save is constrained by -the amount of DI -prosperity to consume *Households can NOT save if DI=0 APS = S/DI = % DI that is not spent APC & APS *APC + APS = 1 *1- APC = APS *APC >1.:Dissaving *- APS .: Dissaving MPC & MPS *Marginal Propensity to Consume (MPC) --The fraction of any change in DI that is consumed. ΔC/ΔDI -% of every extra dollar earned that is spent *Marginal Propensity to Save (MPS) --The fraction of any change in DI that is saved ΔS/...

Unit 1 - Production Possibilities Graphs (PPG) and Movements

Production Possibilities Graphs (PPG, PPC, or PPF) A.K.A Production Possibilities Curve or Frontier - Each point shows trade-off -Shows alternative ways to use resources - Shows most that society can produce if it uses every available resources to best of ability Point A (Inside the curve) - Attainable, inefficient, underutilization Unemployment, Underemployment, war, famine, natural disasters Recession/Depression Point B [ Curve of the Frontier] (on the curve) attainable & efficient **Utilization of resources efficiently** Point C- (Unattainable -Outside the curve) *Technology *Economic Growth Key Assumptions Full employment (not possible w/ laziness, disabled + retired ) *80-90% factor capacity ...

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