ECON1000 Notes: Specialization and Trade Theories

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What is the principle that explains how price controls can have effects seen through other means in the market?

Market equilibrium (correct)

Law of Diminishing Returns

Inflation

Marginal Utility

What happens according to the Law of Diminishing Returns when a factory adds additional workers beyond the optimal level?

Profit margin increases

Efficiency increases

Efficiency decreases (correct)

Output remains constant

Which term refers to the additional satisfaction gained from consuming one more unit of a commodity?

Marginal Product

Marginal Benefit

Marginal Utility (correct)

Specialization

In a market economy, what does the Market Model focus on?

Resource allocation through supply and demand Signup and view all the answers

What is one of the advantages of specialization and trade in an economy?

Increased production efficiency Signup and view all the answers

How does inflation impact the Production Possibilities Frontier (PPF) of an economy?

Shifts the PPF inwards Signup and view all the answers

What does the 'what to produce' question in economics relate to?

Selecting the combination of goods and services to produce Signup and view all the answers

In economics, the 'how to produce' question involves deciding on:

Which factors of production to use Signup and view all the answers

When considering 'for whom to produce' in economics, what is the main concern?

Ensuring equitable distribution of goods and services Signup and view all the answers

What would choosing more consumer goods over capital goods result in?

Less investment in long-term growth Signup and view all the answers

Why might a society choose to use more machines rather than human labor in production processes?

To reduce costs and increase efficiency Signup and view all the answers

In a market economy, what does the term 'specialization and trade' refer to?

The division of labor where individuals focus on specific tasks Signup and view all the answers

What is the premise behind the Theory of Absolute Advantage?

Nations benefit most when they trade goods in which they produce more efficiently than anyone else. Signup and view all the answers

What does Comparative Advantage mean?

Producing a good or service at the lowest cost compared to other countries. Signup and view all the answers

How is Absolute Advantage defined?

When a country can produce a good or service at a lower cost or more efficiently than another country with the same input. Signup and view all the answers

In the context of production, what does Opportunity Cost represent?

The cost of producing one unit of a good or service. Signup and view all the answers

Why is it important for countries to trade based on their Comparative Advantage?

To achieve higher efficiency and benefit from lower opportunity costs. Signup and view all the answers

What is the core principle behind Specialization in trade?

Producing goods where a country has a Comparative Advantage. Signup and view all the answers