Class01_11 - 01/11/2008 Class Notes (cover part of Chapter...

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Class Notes (cover part of Chapter 2 in the textbook) Class Outline Gains from Trade Gains from Trade People’s abilities and the quality of their resources are different the opportunity costs of producing various goods differ across individuals! Example in Class : Brain Surgeon and Mechanic fixing FIAT Punto. Def. Absolute Advantage An individual has an absolute advantage in the production of a good if that individual can produce more than others in the same time or he/she can produce the same output in less time. Def. Comparative Advantage An individual has a comparative advantage in an activity if that person can perform the activity at a lower opportunity cost than anyone else. Example Peter and Laura have an Italian Restaurant each. Table 1. Peter’s and Laura’s Production Possibilities # of Pizzas per hour # of Pasta Salads per hour Peter 40 40 Laura 6 30 1. Peter has an absolute advantage in making both pizzas and pasta salads! 2.
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This note was uploaded on 04/29/2008 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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Class01_11 - 01/11/2008 Class Notes (cover part of Chapter...

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