Econ 1101 1st Edition Lecture 18 Outline of Last Lecture 1. Carbon Emissions2. New Issue: International Trade3. Impacts of tariffs and quotasOutline of Current Lecture 4. Gains from trade: comparative advantage5. Gains from trade: increasing returns6. Real world example: international division of laborCurrent LecturePPF: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:UnattainableAttainable + NOT efficientAttainable + efficientOpportunity cost = slopeComparative AdvantageSuppose another person (Friday) is on Robinson Crusoe’s IslandFriday only works 2 hours a day1 hour:12 coconuts or 4 fish(Robinson = 1 coconut or 3 fish)Friday has ABSOLUTE ADVANTAGE at both fish + coconutsThese 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, suppliesWho can do more with the resoures?Opportunity cost:Robinson = 1/3 coconuts per fishFriday = 3 coconuts per fish Robison has LOWER opportunity costRobinson has COMPARATIVE advantageHow 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 thingthe other person ALWAYS has the comparative advantage over the otherTrade:Robinson gets 24 fish 0 coconutsFriday gets 0 fish 24 coconuts Trade so each get 12/12 and both are better offDavid Ricardo:Trade based on comparative advantageLow skill specialize in labor intensiveHigh skill specialize in design, marketing, medicalOpportunity cost falls as production increases“learning by doing”Preferences for goods from other countries is
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