Production Possibility and Specialization

The video tutorial explores economic concepts such as production possibility frontiers (PPF), opportunity cost, comparative and absolute advantage, and the benefits of specialization and trade. Through the example of Ada and Ben, it illustrates how different opportunity costs lead to comparative advantages, allowing both parties to benefit from trade despite one having an absolute advantage in both goods. The tutorial concludes with a discussion on the potential gains from trade and hints at further topics like indifference curves.

What is the main focus of the video tutorial?

• The benefits of specialization and trade

• The history of economic thought

• The role of government in the economy

• The impact of technology on production

How many units of good X can Ada produce in an hour if she specializes?

• 20 units

• 30 units

• 45 units

• 120 units

What does a point inside the production possibility frontier represent?

• Efficient production

• Optimal production

• Inefficient production

• Unattainable production

What is Ada's opportunity cost of producing one unit of good X?

• Two-thirds of a unit of Y

• Three halves of a unit of X

• Eight-thirds of a unit of Y

• Three-eighths of a unit of X

Who has the absolute advantage in producing both goods?

• Both

• Ada

• Ben

• Neither

According to the law of comparative advantage, what should individuals do to increase production?

• Specialize according to comparative advantage

• Specialize according to absolute advantage

• Use the most expensive resources

• Produce both goods equally

What is the combined production of good Y when Ada and Ben specialize?

• 30 units

• 75 units

• 140 units

• 120 units

What is a clearing price in the context of trade between Ada and Ben?

• A price that benefits both Ada and Ben

• A price that benefits only Ben

• A price that benefits only Ada

• A price that is higher than the market price

How does specialization and trade affect the productive efficiency of Ada and Ben?

• It decreases their efficiency

• It has no effect on their efficiency

• It increases their efficiency

• It makes them dependent on each other