Essentials of Economics Study Set 12

Business

Quiz 3 :
Interdependence and the Gains From Trade

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Quiz 3 :
Interdependence and the Gains From Trade

Absolute advantage: Absolute advantage refers to a country's capacity to produce a certain good more efficiently than the other country. Absolute advantage can also be referred as the capability of a firm or individual to produce more of a product using less resource than the rival firm or another individual. Individual D can wash 2 cars or mow 1 lawn, similarly,individual R can wash 3 cars or mow 1 lawn. Individual R takes less time to wash a car than individual D; hence, individual R has absolute advantage of washing car. Both the individuals take same time to mow loan; hence, no one has absolute advantage in mowing loan. The option 'd' is correct.

(a) Maria's production possibility Frontier:- img The production opportunities for Maria:- img (b) Maria's opportunity cost of reading 1 page of sociology img pages of economics img Marie's opportunity cost of reading 100 pages of sociology img img Pages of economics

Production possibility frontier shows different combinations of production of two goods given technology and full utilization of given resources. The slope of the PPF is the opportunity cost of production. The condition due to which the PPF is linear rather than bowed out is explained below: (1) The PPF is said to be linear when the slope of the PPF is constant, that is, if the opportunity cost remains constant, then the production possibility frontier is a linear.