Micro Economy Research Paper Example | Topics and Well Written Essays - 750 words - 1

Micro Economy - Research Paper poserChoosing one alternative requires giving up a number of other alternatives. There is an opportunity toll involved in making excerptions. Opportunity cost is considered to be the most important concept in economics. It is the value of the best alternative that is given up in order to make a quality (Rittenberg and Tregarthen 2011). It is on these ideas that the theory of comparative profit is based. A country is deemed to have a comparative advantage in producing a good if it has a low opportunity cost n producing that good. Firms as considerably as countries have a comparative advantage in producing one good or go one service over another. It therefore means that since resources labor, capital are land are scrimpy they need to make a choice.The production possibility curve (PPC) is a graphical representation of the unlike juntos of goods and or services that can be produced in an economy with the resources and technology available. It br ings together the three concepts of scarcity, choice and opportunity cost. The choice of producing one good instead of another or a particular combination of goods reflects scarcity of resources, making a choice between alternative options, and highlights the concept of opportunity cost. The slope of the PPC represents the opportunity cost of giving up one good or service for another in the lineament of a simple two good/service model. It is this opportunity cost that is used to determine whether a comparative advantage exists. An economy is deemed to have a comparative advantage in the production of a good or service if the opportunity cost of doing so is lower for that economy than any other.Deardorff in his article entitled The General Validity of the Law of Comparative Advantage though making the point in time that the law does not hold in multi-commodity world indicates that the comparative advantage determines the form that international swop exhibits (941). This propositi on, Deardorff indicates