Micro quiz 2

Micro 1/24

Quiz Thursday
Read China Article
Practice quiz online before test

Production Possibilities Frontier: all the combinations of two goods that can be produced given our resources
***when he has us do math for a PPF (on test), it will be linear****
Law of increasing marginal opportunity cost: as you produce more of a good “x”, the opportunity cost of each additional unit increases
-important because it is the reason for the Law of Supply (upward slope)
-happens because of specialized resources (decide to make more hamburgers, then people with accounting degree go to flip burgers, opportunity cost for accounting goes up)
Things that will shift PPF outwards
– technology increase (***research***)
– more resources (transportation e.g trains)
– population growth
Things that will shift PPF inwards
– disasters
– war (useful people die)
– decreased resources (California falls into abyss)
For shifts, they are NEVER parallel in real life
-ex. drought causes corn production to go down, but not computers
-Trade normally drives up income
Comparative advantage: if you can produce a good at the lowest opportunity cost (Egyptian cotton) (can only have comp adv in ONE thing)
Absolute advantage: you can produce the most (doesn’t matter, it matters more who can produce the most at a lower opportunity cost) (splatter painting… Clark’s numerous paintings [while quitting teaching… larger opportunity cost] and Jackson Pollok’s one splatter paint)
Law of comparative advantage: you can benefit by producing the good for which you have the lowest opportunity cost and then trading
Opp. cost of banana? (gilligan example) 1B=2C
Skipper? 1 B= 1/3 C (comparative advantage)
Opp. cost of coconut?
-gilligan: 1C = 1/2B
-Skipper: 1 C = 3 B
Gain from specializing
-G: 2C 2B
-S 2C 3B
Total: 4 C 5B
– G: 6C 0B
-S: 0C 9B
Total: 6C 9B

****US is a Welfare Capitalist economy***
– has three big players:
1. households (us)
2. Business firms (them)
3. Government
-all three lead to consumer sovereignty (demand rules)
– Input (factor) market: firms buy from us
– Commodity market: we buy from firms
3 types of firms:
1. Sole proprietorship: one owner; unlimited liability, get all profit, control, fast and cheap
2. Partnership: 2 or more; unlimited liability; start up costs; share profits
3. Corporation: 1 or more shareholders; limited liability; share more; 2 taxation


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