Salvatore
c02.tex
V2 - 10/26/2012
1:33 P.M.
Page 51
Questions for Review
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opportunity cost theory. This states that the cost of a
commodity is the amount of a second commodity that
must be given up to release just enough resources to
produce one additional unit of the first commodity.
The opportunity cost of a commodity is equal to the
relative price of that commodity and is given by the
(absolute) slope of the production possibility frontier.
A straight-line production possibility frontier reflects
constant opportunity costs.
6. In the absence of trade, a nation’s production pos-
sibility frontier is also its consumption frontier. With
trade, each nation can specialize in producing the com-
modity of its comparative advantage and exchange
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