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Scarcity, Choice and Interaction for Individuals

Scarcity, Choice and Interaction for Individuals

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Figure 1.1

Gains from Trade

Through a Better

Allocation of Goods



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1. Scarcity, Choice and Interaction for Individuals (Cont.)



1c. Trade also permits producers specialize and

take advantage of the division of labor. This

can be seen in the concept of comparative

advantage – people specialize in the things in

which they have a relative advantage. This

allows opportunity cost to be minimized.



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1. Scarcity, Choice and Interaction for Individuals (Cont.)



1d. Global trade allows exchange across

countries and among many parties.

1e. Money allows people to trade without

bartering, making global trade easier. Trade

between countries requires that currencies

be traded on a foreign exchange market.



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2. The link between “choices” and “resources”:

PRODUCTION POSSIBILITIES CURVE



Simplifying Assumptions:

1. Economy is operating efficiently

2. Available supply of resources is fixed in quantity

and quality at this point of time

3. No new development in technology during

analysis

4. Economy produces only 2 types of products



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TABLE 1.1 – PRODUCTION POSSIBILITIES



CHOICE

A



MOVIES

0



COMPUTERS

25,000



B



100



24,000



C



200



22,000



D



300



18,000



E



400



13,000



F



500



0



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