3.Economic Concepts, Comparative Advantage & Circular Flow

3.Economic Concepts, Comparative Advantage & Circular Flow

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© 2009 Lucia F. Dunn 11 ECONOMICS 200 PRINCIPLES OF MICROECONOMICS Professor Lucia F. Dunn Department of Economics Slide Set 3: Economic Concepts, Comparative Advantage & Circular Flow
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22 Comparative Advantage If A can produce guns more cheaply than butter, and B can produce butter more cheaply than guns, then there will be gains in total production if each country specializes in the item where they produce more cheaply.
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33 COMPARATIVE ADVANTAGE You have a comparative advantage in a good if you can produce it more cheaply relative to another good– i.e., at a lower opportunity cost – than someone else. You have an absolute advantage where you produce more cheaply -- PERIOD.
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44 The Gains from Specialization CASE 1: U.S. has absolute advantage in corn, and Canada has absolute advantage in wheat. Each country devotes 1 labor hour to each crop, i.e., no specialization. Production
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3.Economic Concepts, Comparative Advantage & Circular Flow

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