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ec-11 - Butter Butter Guns Guns A OG Econ Lects 9/11 PKO S...

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AOG Econ Lects. PKO’S PPF PKO’S consumption Butter Guns Constant slope: rate which butter for guns Butter Guns Bowed out: costs inc. law of diminishing return 9/11 Chapter 3: Comparative Adv. & Trade I. Humans are doers a. Producers b. Consumers c. Traders Example II. Ch 3 Basic Points a. Not a new idea i. 1817 1. From David Kicardo (1772-1823) b. Not well understood c. Basic proposition i. As long as opp. Cost differ between individuals or nations, both parties can benefit from specialization III. Example a. Mankiw’s farmer and rancher
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IV.Absolute Advantage a. The ability to produce with fewer resources; more output form same resources b. Not the basis for trade c. Chart 120 Hours of Labor Produce: Cotton Transistor Japan 6/6 3/6 China 4/4 1/4 i. Opportunity cost to produce 1 cotton 1. Japan a. ½ transistor 2. China a. ¼ transistor (Cheaper) i. Comparative adv. ii. Opportunity cost of 1 transistor 1. Japan a. 2 cotton 2. China a. 4 cotton d. Comparative adv.
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