Microeconomics Chapter 2

Microeconomics Chapter 2 - absolute advantage in production...

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Microeconomics: Chapter 2 24/08/2007 13:35:00 Dr. Clouds nieces… most likely on the test: Trip, Dot, Neil, and Burt  Specialization and Trade Division of labor into more specialized tasks. Trade improves productivity because it permits specialization The decision is how to divide the work.  The best way is to compare the  opportunity costs of each option to arrive at what is called  comparative  advantage o Based on opportunity cost- specialize in the production of the good  with the lowest opportunity cost. o Ex.  Maximum Daily Production: o If the US and Brazil both want to produce computers and Beef, and the  US produces 50 computers to Brazil’s 10 and the US produces 40  cows to Brazil’s 30 the US has the 
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Unformatted text preview: absolute advantage in production. In this case however, despite the fact that the US is STILL better at beef production Brazil has the comparative advantage in beef production when compared their extreme inefficiency in computer production in comparison with the United States. ← • Calculations: o OC of Computers = loss in beef/ gain in computers. For the US that is 40/50. For Brazil that is 30/10 In this case the opportunity cost is lower for the US. o OC of Beef = loss in computers/ gain in beef. For the US that is 50/40 For Brazil that is 10/30 In this case the opportunity cost for producing beef is far lower for Brazil than for the US....
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