Lecture 3 - Announcements HW1 due Monday at 11:45pm-sign up...

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Announcements HW1 due Monday at 11:45pm—sign up for Aplia if you have not! In Aplia, only the assignments marked “graded” are graded. The readings are there just to let you know where we are in the book (also, some of the questions refer to the book – look at the online chapters if you need to). 1 of 36
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Article Alert! Good examples of “unintended consequences” (remember “ignoring secondary effects”?) in NY Times article I put under “course documents” on Blackboard By the authors of “Freakonomics” – a book worth checking out.
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A Puzzle Why do soda vending machines dispense only one can while newspaper vending machines allow you to take ALL the newspapers? 3 of 34
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Comparative and absolute advantage: Absolute advantage: To be “absolutely” better at something. Comparative advantage: To be “comparatively” better at something (I know, not very useful). Let’s consider an example. 4 of 36
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Comparative and absolute advantage, a simple example o You and your roommate need to do two things: cook and clean. o Your roommate is a great cook and a really fastidious cleaner. o You are a decent cleaner (but not as good as your roommate) and you can not cook at all. o So your roommate has an “absolute advantage” in both cooking and cleaning. o Does this mean that when you divide up 5 of 36
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Specialization No! The “law of specialization” says that each person should do what they have a “comparative advantage” in. Since you can’t cook at all, you are comparatively better at cleaning, so you have a “comparative advantage” in cleaning. Leave the cooking to your roommate and do the cleaning. 6 of 36
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7 of 36 More formally: absolute advantage A producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources. comparative advantage A producer has a comparative advantage over another in the production of a good or service if it can produce that product at a lower opportunity cost .
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8 of 36 SCARCITY, CHOICE, AND OPPORTUNITY COST Colleen and Bill want to maximize their production subject to the constraint that the number of logs and bushels of food are the same. Here Colleen spends 15 days
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This note was uploaded on 06/21/2009 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

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Lecture 3 - Announcements HW1 due Monday at 11:45pm-sign up...

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