What is CPC Econ?

In this chapter the concept of a consumption possibilities curve (CPC) is introduced. Define CPC. Definition. Similar to the PPC, the CPC is a graph of the maximum quantity of goods or service consumers in an economy can consume when resources efficiencies are maximized.

What is a comparative advantage in economics?

Comparative advantage is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners. The theory of comparative advantage introduces opportunity cost as a factor for analysis in choosing between different options for production.

Which is consumption possibility curve?

The production possibilities curve (PPC) is a graph that shows all of the different combinations of output that can be produced given current resources and technology. Sometimes called the production possibilities frontier (PPF), the PPC illustrates scarcity and tradeoffs.

How is comparative advantage related to production possibilities?

Comparative advantage thus can stem from a lack of efficiency in the production of an alternative good rather than a special proficiency in the production of the first good. The combined production possibilities curve for the firm’s three plants is shown in Figure 2.5 “The Combined Production Possibilities Curve for Alpine Sports”.

How does an economy achieve a point on its production possibilities curve?

An economy achieves a point on its production possibilities curve only if it allocates its factors of production on the basis of comparative advantage. If it fails to do that, it will operate inside the curve.

When does comparative advantage lead to mutually beneficial trade?

Mutually Beneficial Trade with Comparative Advantage When nations increase production in their area of comparative advantage and trade with each other, both countries can benefit. The production possibilities frontier is a useful tool to visualize this benefit.

How to show comparative advantage in a PPC?

The gains from trade can be shown in a PPC by drawing a line originating at the point on the axis on which an agent is specializing its production (in the good it has a comparative advantage in) out to a point on the opposite axis beyond what it could have achieved without trade.