AP Econ Ch. 2 "Specialization and Comparative Advantage"

• Allowing people with different abilities to only do what they are relatively good at in order to enahnce productivity.
• It permits people to develop expertise in the task(s) that they concentrate on--practice improves performance.

When a country can produce a good using fewer resources per unit of output than another country.

When a country can produce a good at a lower opportunity cost than another country.

What, how, and for whom to produce

• Requires that national output reflects the needs and wants of consumers.
• Price = Marginal Cost

The cost of producing one more unit.

The value of one more unit.

• Determining how much of each input to use in the production process.
• wage/capital cost = w/r = MP_L/MP_K
• MP_K/r = MP_L/w

The price of labor.

The price of capital.

The additional output produced by one more unit of labor.

The additional output produced by one more unit of capital.

The marginal product on an input.

Requires that those who place the highest relative value on goods receive them.

The additional utility from the last unit.

How much a good costs.

• The ratio of marginal utilities
• MU_C/MU_F = marginal utility (clothing) / marginal utility (food)
• Distributive efficiency occurs when this is equal for every consumer.