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Chapter3-1 - Chapter 3 Interdependence and the Gains from...

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Chapter 3 Interdependence and the Gains from Trade
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Outline of Chapter 3 Production possibilities frontier Opportunity cost Absolute advantage Comparative advantage Comparative advantage, specialization, and the gains from trade Opportunity cost: applications
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OUTPUT PER WORKER WORKERS FOOD AUTOS I 100 20 5
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AUTO WORKERS AUTO OUTPUT FOOD WORKERS FOOD OUTPUT 0 0 100 2,000
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AUTO WORKERS AUTO OUTPUT FOOD WORKERS FOOD OUTPUT 0 0 100 2,000 100 500 0 0
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AUTO WORKERS AUTO OUTPUT FOOD WORKERS FOOD OUTPUT 0 0 100 2,000 100 500 0 0 50 250 50 1,000
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AUTO WORKERS AUTO OUTPUT FOOD WORKERS FOOD OUTPUT 0 0 100 2,000 100 500 0 0 50 250 50 1,000 25 125 75 1,500
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“The production possibilities frontier is a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.” (p 25)
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Food Autos 2,000 500 B A
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Food Autos 2,000 500 B A Slope = -4
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Food Autos 2,000 500 B A H
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Food Autos 2,000 500 B A J
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“The opportunity cost of an item is what you give up to get that item.” (p 6)
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OUTPUT PER WORKER WORKERS FOOD AUTOS I 100 20 5 II 25 30 15
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Food Autos 750 375 C D Slope = -2
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“The producer that requires a smaller quantity of inputs to produce a good is said to have an
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