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ABSOLUTE ADVANTAGE: The general ability to produced more goods using fewer resources. This idea of absolute advantage is important for trading that occurs between both people and nations. A nation can get an absolute advantage from an advanced level of technology or higher quality resources. For a person, an absolute advantage can result from natural abilities or the acquisition of human capital (education, training, or experience).

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Lesson 12: Business Cycles | Unit 4: Causes Page: 19 of 26

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Three points about investment and business cycles:
  • First: Investment is sensitive to interest rates. Higher interest rates increase the cost of investment borrowing and discourages investment.
  • Second: Interest rates rise and fall with the business cycle. During an expansion, interest rates rise enough to discourage investment, and trigger a contraction. During a contraction, interest rates fall enough to encourage investment and cause a new expansion.
  • Third: Investment doesn't react immediately to interest rates. The production of capital goods takes time and does not respond instantly to interest rate changes.
Interest-rate-induced changes in investment seem to be a natural cause-and-effect part of business cycles.

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SUPPLY TO A FIRM

The range of quantities of a factor that a firm is able to buy at a range of factor prices. Supply to a firm is a phrase that is most relevant to the study of factor markets, especially when contrasted with supply by a firm. Supply to a firm puts the firm on the buying side of the factor market. Supply by a firm puts the firm on the selling side of the factor market.

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The earliest known use of paper currency was about 1270 in China during the rule of Kubla Khan.
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