Econ 1101 1st Edition Lecture 18 Outline of Last Lecture 1 Carbon Emissions 2 New Issue International Trade 3 Impacts of tariffs and quotas Outline of Current Lecture 4 Gains from trade comparative advantage 5 Gains from trade increasing returns 6 Real world example international division of labor Current Lecture PPF To plot line If spends all time doing X how much will have If spends all time doing Y how much will have 3 thing a point can be Unattainable Attainable NOT efficient Attainable efficient Opportunity cost slope Comparative Advantage Suppose another person Friday is on Robinson Crusoe s Island Friday only works 2 hours a day 1 hour 12 coconuts or 4 fish Robinson 1 coconut or 3 fish Friday has ABSOLUTE ADVANTAGE at both fish coconuts These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Absolute Advantage being able to produce more of a good than others with the same amount of resources resources can be time money supplies Who can do more with the resoures Opportunity cost Robinson 1 3 coconuts per fish Friday 3 coconuts per fish Robison has LOWER opportunity cost Robinson has COMPARATIVE advantage How many coconuts does Robinson give up per fish Only 1 3 on one Friday must give up 3 Robinson gives up less per fish If one person has a comparative advantage of one thing the other person ALWAYS has the comparative advantage over the other Trade Robinson gets 24 fish 0 coconuts Friday gets 0 fish 24 coconuts Trade so each get 12 12 and both are better off David Ricardo Trade based on comparative advantage Low skill specialize in labor intensive High skill specialize in design marketing medical Opportunity cost falls as production increases learning by doing Preferences for goods from other countries is popular
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