EconH200L3

EconH200L3 - Comparative Advantage and Trade What...

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Comparative Advantage and Trade What determines which people produce which goods? In this simple “economy” there are two goods, meat and potatoes, and two people who we will call the rancher and the farmer. (I wonder why?) Both people have 8 hours to spend producing potatoes, meat, or a combination of both. The following table shows their production opportunities. Notice that the left half of the table and the right half of the table basically contains the same information.
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In terms of time , the farmer needs 60 minutes and the rancher needs 20 minutes to produce an ounce of meat. The farmer needs 15 minutes and the rancher needs 10 minutes to produce an ounce of potatoes. During the 8 hour work day, the farmer can produce 8 ounces of meat (since there are 8 sixty-minute periods in the day) or 32 ounces of potatoes (since there are 32 fifteen-minute periods). During the 8 hour work day, the rancher can produce 24 ounces of meat (since there are 24 twenty-minute periods in the day) or 48 ounces of potatoes (since there are 48 ten-minute periods). The rancher has an absolute advantage in producing both goods. [the ability to produce with fewer inputs (in this case, time)]
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The next figures show the farmer’s production possibilities frontier, and the rancher’s production possibilities frontier. The y-intercepts are based on only producing
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This note was uploaded on 07/17/2008 for the course H 200 taught by Professor Fleisher during the Fall '08 term at Ohio State.

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EconH200L3 - Comparative Advantage and Trade What...

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