Economic Principle: Definitions, Concepts, Market Analysis, and Policy Implications

Running head: ECONOMIC PRINCIPLE
Economic Principle
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ECONOMIC PRINCIPLE 1
Table of Contents
Answer to Question 1- Definitions and Concepts...........................................................................2
Answer to Question 2- Market Analysis.........................................................................................3
Answer to Question 3: Broader Policy Implications.......................................................................5
Reference List..................................................................................................................................8

ECONOMIC PRINCIPLE 2
Answer to Question 1- Definitions and Concepts
i.
Absolute advantage signifies that economy will be able to produce the same quantity of
output compared to the other economies with the same resources. On the other hand, the
comparative advantage takes place when an economy can produce certain goods and services at
significantly low opportunity cost than the other. In the context of the households it can be stated
that if a person can prepare better food given the same inputs in comparison to the neighbors
then it can be stated that the person has an absolute advantage in cooking over the other
households (Bernanke et al., 2015). On the other hand using all the resources if a household can
produce more food products or grow more vegetables than the other households then it will be
stated that the household possesses a comparative advantage.
ii.
The opportunity cost is defined as the amount of money or resources forgone for availing
a service or purchasing a product and not consuming the next best alternative. In the given case
of the dentist, he has hired a nurse who is less efficient and thereby the doctor is accruing the
opportunity cost of not hiring the more efficient nurse instead (Stiglitz and Rosengard, 2015). On
the other hand, the unique skills and efficiency of the doctor has provided him with a
comparative advantage over the other doctors of the locality. Hence in order to suffice the
accrual of the opportunity cost the doctor instructs the nurse to carry out the tasks.