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Unformatted text preview: • Absolute advantage – can get more output of a good with a given quantity of resources than someone else. COMPARATIVE ADVANTAGE • Comparative Advantage - Produces a good at a lower opportunity cost (trade depends on comparative advantage, not absolute advantage) • Two crops: WHEAT and RYE • Same resource endowments • Kelli has the absolute advantage for both RYE and WHEAT PRINCIPLE OF COMPARATIVE ADVANTAGE • All can benefit when people specialize and trade according to COMPARATIVE ADVANTAGE! WHY DOESN’T MICHAEL JORDAN MOW HIS OWN LAWN? • Even if he has an absolute advantage at playing sports and mowing his own lawn, he is going to do sports and commercials instead • By specializing in what people are really talented at, it frees people up to do what they would like to do (what they are really good at) – increases efficiency (increases overall output) •...
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