conf2 macroeconomica

conf2 macroeconomica - pounds of cherries! In this case I...

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(A) My opportunity cost of picking 1 pound of cherries is 1 pound of apples and for picking 1 pond of apples is 1 pound of cherries. My neighbor’s opportunity cost of picking 1 pound of apples is 2 pounds of cherries and her opportunity cost for picking 1 pound of cherries is 0.5 pound of apples. (B) The range of trades of cherries for apples that will allow gains from trade for me and my neighbor: My neighbor trades me 15 pounds of cherries and I trades to her 10 pounds of apples. In this case I’ll get 5 pound of cherries more than I can without trade. My neighbor will get 1 pound more of apples and 3 pounds more of cherries. I think that the minimum amount of cherries that my neighbor would trade to me is 12 pounds of cherries for pounds of 9 apples. In this case my gain is 1 pound of apples and my neighbor’s gain is 6 pounds of cherries! And the minimum amount that I would trade apples to my neighbor is 9 pounds of apples for 17
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Unformatted text preview: pounds of cherries! In this case I would gain 5 pounds of cherries and 3 pounds of apples from trade! And my neighbor would gain only 1 pound of cherries. (C) This is the case of comparative advantage because: Comparative advantage is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. Even though my neighbor can pick more apples in a week than I can, the opportunity cost of picking apples is higher for her than for me, because when she picks apples, she gives up more cherries than I do. So, even though she has an absolute advantage over me in picking apples, it is more closely for her to pick apples than it is for me. Also, her opportunity cost of picking cherries is lower than my opportunity cost of picking cherries....
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This note was uploaded on 10/19/2008 for the course ECON 201 taught by Professor Shea during the Fall '08 term at Maryland.

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