367 lecture 2
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Transcript of 367 lecture 2
Opportunity CostsProduction Possibilities Curve
Comparative Advantage
Comparative Advantage
Comparative Advantage
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Absolute Advantage
Produce more with the same resources
Comparative Advantage
Produce at a lower opportunity cost
GaleGale AliAli TotalTotalHoursHours
Make a Make a HookHook
3 2 5
Catch Catch a Fisha Fish
4 1 5
TotalTotalHoursHours
7 3 10
No Trade2 Hooks and 2 Fish
10 Hours - 5 Hours per Fish
GaleGale AliAli TotalTotalHoursHours
Make a Make a HookHook
2 hooks6 hours 6
Catch Catch a Fisha Fish
2 fish2 hours 2
TotalTotalHoursHours
6 2 8
With Trade2 Hooks and 2 Fish
8 Hours - 4 Hours Per Fish
Dates Potatoes
24 0
20 1
16 2
12 3
8 4
4 5
0 6
Ratios24 to 6
4 Dates for 1 Potato6 to 24
1/4 Potato for 1 Date
Dates Potatoes
6 0
5 5
4 10
3 15
2 20
1 25
0 30
Ratios6 to 30
1/5 Dates for 1 Potato30 to 6
5 Potatoes for 1 Date
Saudi Arabia Idaho
24
30
6
6 Potatoes15
12
3
3
9
15
18
21
9 12 18 21 24 2700
27
Should Idaho and Saudi Trade?Dates
SaudiPPF
IdahoPPF
Dates Potatoes
6 0
5 5
4 10
3 15
2 20
1 25
0 30
Dates Potatoes
24 0
20 1
16 2
12 3
8 4
4 5
0 6
InternalInternalPricePrice DatesDates PotatoesPotatoes
Idaho 5 Potatoes 1/5 Date
Saudi 1/4 Potato 4 Dates
AnalysisAnalysis DatesDates PotatoesPotatoes
No TradeTotals 15 18
SpecializeTotals 24 30
Gain +9 +12
TradeTrade DatesDates PotatoesPotatoes
Idaho 3 to 12 = +9 15
California 12 3 to 15 = +12
Total 24 30
24
30
6
6 Potatoes15
12
3
3
9
15
18
21
9 12 18 21 24 2700
27
Should Idaho and Saudi Trade?Dates
SaudiPPF
IdahoPPF
TradePPF
Idaho gains
9 Dates
Saudi gains
12 potatoes