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After reading this chapter, you should be able to:
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Define fully what is meant by land, labor, capital, human capital,
entrepreneurship, and technology. (Section 2.1)
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Explain what is meant by opportunity cost. (Section 2.1)
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Draw a production possibilities frontier, to explain its shape and
meaning, and to discuss how opportunity cost (both total and
marginal) can be illustrated with it. (Section 2.2)
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Explain what is meant by the law of increasing cost, be prepared to
also be able explain why it exists (and concurrently why the
production possibilities frontier is bowed out from the origin).
(Section 2.2)
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Show how a production possibilities frontier can be used to
illustrate efficiency, inefficiency, and scarcity (impossible
combinations of output). (Section 2.2)
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Show how a production possibilities frontier can be used to
illustrate economic growth and technological change, even if the
technological change is specialized. (Section 2.2)
- Explain
and draw the simple modal of the Circular Flow of Economic Activity
labeling its markets, actors, real and money
flows, and explain what money is and what its function in the
economy is. (Section 2.3)
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Define the difference between absolute advantage and comparative
advantage and explain which one is more important as a basis for
specialization and trade. (Section 2.4)
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Be able to compute absolute and comparative advantage from numerical
examples and to tell from such computations which country should
specialize in which product. (Section 2.4)
- Convey how economic growth and the strength it provides can lead
to victory in international conflicts. (Section 2.5)
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