3. ComparativeAdvantageandGainsfromTrade

3. ComparativeAdvantageandGainsfromTrade - Ch. 3...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Ch. 3 Comparative Advantage & Gains from Trade
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Suppose there are 2 people trapped on an island: Peyton the potato farmer and Brett the beef rancher. Only two goods are produced: potatoes and meat, and each person can produce both goods. The following table gives information on how much they can produce of each good:
Background image of page 2
Copyright © 2006 Nelson, a division of Thomson Canada Ltd. MEAT or POTATOES Peyton 8 oz 32 oz Brett 24 oz 48 oz
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Suppose Peyton and Brett fend for themselves: Each consumes what they each produce. So, the production possibilities frontier is also a consumption possibilities frontier.
Background image of page 4
Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Let’s compute the opportunity costs of producing each good for each person: (let’s ignore the units of measurement for now) For Peyton: To get 32 potatoes, give up 8 meat To get 1 potato, give up ¼ meat The opp.cost of a potato = ¼ meat The opp.cost of a meat = 4 potatoes
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Copyright © 2006 Nelson, a division of Thomson Canada Ltd. For Brett:
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 21

3. ComparativeAdvantageandGainsfromTrade - Ch. 3...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online