outline_ch02

outline_ch02 - Chapter 2 Generalize or Specialize?...

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Chapter 2
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Generalize or Specialize? Generalize 1. 2. 3. 4. Specialize 1. 2.
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Absolute vs. Comparative Advantage A person has an absolute advantage in a task over someone else if : A person has a comparative advantage in a task over another if :
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Absolute vs. Comparative Advantage Absolute Advantage: is measured in terms of Comparative Advantage: is measured in terms of
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Principle of Comparative Advantage When each person (or country) concentrates on the activities for which his opportunity cost is lowest, aggregate output is maximized 1. 2.
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Production Table for Rikke and Beth Absolute Advantages Updating Webpages Repair Bicycles Rikke 3 per hour 6 per hour Beth 2 per hour 2 per hour
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TABLE 2.3 The Gains When Rikke and Beth Specialize
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Sources of Comparative Advantage For individuals 1. 2. For countries 1. 2. 3.
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Calculating Opportunity Costs for Rikke OC w = OC b = Calculating Opportunity costs for Beth OC w = OC b =
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II. Comparative Advantage and Production Possibilities
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The Production Possibilities Curve A graph that describes the maximum For example, picking coffee beans or picking Macadamia nuts.
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FIGURE 2.1 Susan’s Production Possibilities
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Attainable Versus Unattainable Points Attainable Point Unattainable Point
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Efficient versus Inefficient Points Efficient Point Inefficient Point
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FIGURE 2.2
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outline_ch02 - Chapter 2 Generalize or Specialize?...

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