Chapter 2 PowerPoint Slides

Chapter 2 PowerPoint Slides - Comparative Advantage: The...

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Comparative Advantage: The Basis for Exchange Chapter 2
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The Economic Naturalist In many poor countries, people can perform a wide variety of tasks, including sewing, roofing, cobbling, carpentry, cooking, first aid, butchering, painting and plastering, etc. Why are the poor so resourceful and able to do so many tasks that we in the wealthy countries hire others to do for us?
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Specialization and Division of Labor Division of labor means taking a large task and breaking it down into smaller tasks that are performed individual workers rather than having one worker perform all tasks. Specialization means that a person continually performs one task or service and becomes skilled in this task, improving productive efficiency.
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The Economic Naturalist and the King of Torts Joe Jamail is a highly successful trial lawyer and devotes his working hours to litigation. He could write his own will in about 2 hours, or he could hire a property attorney to write the same will in about 4 hours and charge him $800. Should he write his own will?
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Absolute and Comparative Advantage Absolute Advantage means that one party (individual, firm, country) can perform a task faster or with fewer resources than another party. Comparative Advantage means that one party has a lower opportunity cost of performing a given task than the other party. King of Torts example
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Absolute Advantage Example Time to update a web page Time to complete a bicycle repair Paula 20 minutes 10 minutes Beth 30 minutes 30 minutes
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Absolute Advantage Example (cont) Paula is better at both tasks than Beth. She has an absolute advantage in Web updates and bicycle repair. However, when we look at opportunity costs, our perception changes
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Absolute Advantage Example (cont) Paula: The opportunity cost of updating 1 web page is the repair of two bikes. The opportunity cost of repairing one bike is the updating of half of a web page. Beth: The opportunity cost of updating 1 web page is the repair of one bike. The opportunity cost of 1 bike repair is the updating of 1 web page.
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The Law or Principle of Comparative Advantage Each person, firm, or country should specialize in the activities (produce goods
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Chapter 2 PowerPoint Slides - Comparative Advantage: The...

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