ECON101: Principles of Microeconomics

1.2: Economic Models

• 1.2.1: The Production Possibility Frontier

  • Principles of Microeconomics: "Chapter 2, Sections 1 and 2"

    Read Sections 2.1 and 2.2 . Take a moment to read through the stated learning outcomes for this chapter, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Also, attempt the "Try It" problems for each section before checking your answers.

    The first section of the chapter will introduce you to the four factors of production that are present in the economy: labor, capital, natural resources, and entrepreneurship. Using any two factors of production, you can then learn to construct the production possibility frontier (PPF) in a two plane model. Note the economic implications of the downward slope and the bowed-out shape of the PPF curve. Also, note the meaning of producing on the curve versus inside the curve. Lastly, think about what it means to move along the curve.

  • Khan Academy's "Production Possibilities Frontier" Page

    Watch this video about the production possibilities frontier.
    

  • Khan Academy's "Allocative Efficiency and Marginal Benefit" Page

    Watch this video about allocative efficiency and marginal benefit.
    

  • Khan Academy's "Economic Growth through Investment" Page

    Watch this video about economic growth through investment.
    

• 1.2.2: Comparative Advantage vs. Absolute Advantage

  This model is an application of the production possibility frontier studied in the previous section, albeit in a global set-up. In this subunit, we will bring the argument for international trade, specialization, comparative advantage, and the resulting economic growth to light. The mechanics of comparative advantage will reveal why it would benefit a country to import goods it produces at home.
  

  • Khan Academy's "Comparative Advantage Specialization and Gains from Trade" Page

    Watch this video about comparative advantage specialization and gains from trade.
    

  • OpenStax College: "Principles of Microeconomics, Section 19.1: Absolute and Comparative Advantage"

    Read this section, which covers the underlying meaning of the model of comparative advantage
    

  • Khan Academy's "Comparative Advantage and Absolute Advantage" Page

    Watch this video about comparative advantage and absolute advantage.