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Econ1-Fall2010-02b-CompAdv-handout - Readings Economics1...

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Economics 1 rinciples of Microeconomics Principles of Microeconomics 2. Comparative Advantage (B) Fall 2010 Herb Newhouse 1 eadings Readings h 2: Comparative Advantage (p 47 9) Ch 2: Comparative Advantage (p 47 49) Comparative Advantage and Production ossibilities Possibilities Factors that Shift the Economy’s Production ossibilities Curve Possibilities Curve Comparative Advantage and International Trade 2 utline Outline ains from Trade Gains from Trade. A PPC for a Many Person Economy. Factors that Shift a PPC. Specialization. Comparative Advantage and International Trade. 3 omparative/Absolute Advantage Comparative/Absolute Advantage In order to understand why individuals interact, y , you have to understand comparative advantage. bsolute advantage Absolute advantage : One person has an absolute advantage over another if he takes fewer hours to perform a task than the other person. Comparative advantage : One person has a comparative advantage over another if his opportunity cost of performing a task is lower than the other person’s opportunity cost. p pp y 4
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ains from Trade Gains from Trade Provided people have different comparative advantages between two tasks they can (potentially) gain from trade. In our previous two examples Sheila had a comparative p p p advantage in fishing. Consider starting from the point on their combined PPC where they both spend all their time picking coconuts. y p pg If we want to add a little fishing we’ll let Sheila fish because she has a lower opportunity cost.
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Econ1-Fall2010-02b-CompAdv-handout - Readings Economics1...

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