Lecture Notes 2-4-10 - unit of output. 2. To look at the...

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Notes: 2-4-10 Economics T-Th A. Ordonez Asch T. Hawthorn 809-195-3K1C 2/4/10 Why Economists Disagree They may have different values and, therefore, different normative views about what policy should try to accomplish. They may disagree about the validity of alternative positive theories about how the world works. Interdependence and the Gains from Trade How do we satisfy our wants and needs in a global economy? o We can be economically self sufficient o We can specialize and trade with others leading to economic interdependence. Why is interdependence the norm? o Because people are better off when they specialize and trade with others. What determines the pattern of production and trade? o Patterns of production and trade are based upon differences in opportunity costs. Differences in costs of production - determine the following: o who should produce what o how much should be traded for each product Two ways to measure differences in cost of production- 1. Measure according to productivity - the number of hours required to produce a
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Unformatted text preview: unit of output. 2. To look at the opportunity cost of sacrificing one good for the other Advantages: Absolute Advantage - o the comparison among producers of a good according to their productivity o Describes the productivity of one person, firm, or nation to that of another o *** The producer that requires a smaller quantity of inputs to produce a good is said to have Absolute Advantage in producing that good. Comparative Advantage - (* the driving force of specialization) Notes: 2-4-10 Economics T-Th A. Ordonez Asch T. Hawthorn 809-195-3K1C 2/4/10 o Compares producers of a good according to their Opportunity Cost , that is what must be given up to obtain some item. o The producer who has the smaller opportunity cost of producing a good is said to have the comparative advantage in producing that good. Exam 1: Thurs. Feb. 11th - chapter 1,2, &3 Assignment 1 & objective sheets due before test...
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Lecture Notes 2-4-10 - unit of output. 2. To look at the...

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