Macroeconomics Chapter 2 & 3
Absolute advantage
the ability to produce the same good using fewer inputs than another producer
Production possibilites frontier
shows all the combinations of goods that a country can produce given its productivity and supply of inputs
Comparative advantage
country which has the lowest opportunity cost for producing goods
Demand Curve
a function that shows the quantity demanded at different prices
Quantity demanded
quantity that buyers are willing and able to buy at a particular price
Law of Demand
lower the price, the higher the demand
Consumer surplus
the consumer’s gain from exchange or the difference between the maximum price a consumer is willing to pay for a certain quantity and the market price
Total consumer surplus
measured by the area beneath the demand curve and above the price
Normal good
good for which demand increases when income increases
Inferior good
a good for which demand decreases when income increases
Substitutes
If two goods are substitutes, a decreases in the price of one good leads to a decrease in demand for the other good
Complements
If two goods are complements, a decrease in the price of one good leads to an increase in the demand for the other good
Producer surplus
producer’s gain from exchange or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity
Total producer surplus
measured by the area above the supply curve and below the price