Chapter 3 - Exchange and Markets Chapter 3 Voluntary...

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Exchange and Markets Chapter 3
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Voluntary Exchange A voluntary exchange between two  individuals makes them both better off. Exchange is based on: 1. Absolute Advantage 2. Comparative Advantage
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Absolute Advantage A producer has an  absolute advantage   over another in the production of a good or  service if he/she can produce that product  using fewer resources, including time.
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Absolute Advantage What if a single producer has an absolute  advantage in all the commodities that  he/she produces?  Should he/she still exchange or trade with  others? 
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Comparative Advantage Trade will still be beneficial, based on  comparative advantage A producer has a  comparative  advantage  in the production of a good or  service over another if it can produce that  product at a lower opportunity cost
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Comparative Advantage -  Example Wood (logs per day) Food (bushels per day) Kate 10 10 Bill 4 8
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Chapter 3 - Exchange and Markets Chapter 3 Voluntary...

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