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AP Econ Ch. 2 "Specialization and Comparative Advantage"

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  1. Specialization/Division of Labor
    • 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.
  2. Absolute Advantage
    When a country can produce a good using fewer resources per unit of output than another country.
  3. Comparative Advantage
    When a country can produce a good at a lower opportunity cost than another country.
  4. Terms of Trade
  5. Functions of an Economic System
    What, how, and for whom to produce
  6. Allocative Efficiency/Efficiency in Output (P = MC)
    • Requires that national output reflects the needs and wants of consumers.
    • Price = Marginal Cost
  7. Productive Efficiency P = min ATC
  8. Marginal Cost
    The cost of producing one more unit.
  9. Marginal Value
    The value of one more unit.
  10. Efficiency in Production/Technological Efficiency
    • Determining how much of each input to use in the production process.
    • wage/capital cost = w/r = MPL/MPK
    • MPK/r = MPL/w
  11. Wage
    The price of labor.
  12. Rent
  13. Rental Rate
    The price of capital.
  14. Marginal Product of Labor (MPL)
    The additional output produced by one more unit of labor.
  15. Marginal Product of Capital (MPK)
    The additional output produced by one more unit of capital.
  16. Marginal Physical Product
    The marginal product on an input.
  17. Distributive Efficiency/Efficiency in Exchange
    Requires that those who place the highest relative value on goods receive them.
  18. Marginal Utility (MU)
    The additional utility from the last unit.
  19. Price (P)
    How much a good costs.
  20. Marginal Rate of Substitution (MRS)
    • The ratio of marginal utilities
    • MUC/MUF = marginal utility (clothing) / marginal utility (food)
    • Distributive efficiency occurs when this is equal for every consumer.
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sa711kevin
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AP Econ Ch. 2 "Specialization and Comparative Advantage"
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AP Econ Ch. 2 "Specialization and Comparative Advantage"
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