251Ch2lecture1Notes

251Ch2lecture1Notes - 8/22/2011 Costs Vary Across...

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8/22/2011 1 Chapter 2: The Economic Problem Lecture 1: Comparative and absolute advantage 1 Ch2: The Economic Problem Lecture 1: Comparative and absolute advantage 2 Costs Vary Across Individuals • Brain surgeon vs. mechanic – Brain surgeon can tune up car in 1 hour – Mechanic needs 2 hours to tune up car • Who should tune up the car? – Brain surgeon makes $1,000/hour. Mechanic charges $100/hour 3 Faster Absolute advantage ▪Production of a good can be achieved in less time ▪More can be produced in the same amount of time Lower cost Comparative advantage ▪ Cost of production is lowest Brain surgeon has absolute advantage, but mechanic has comparative advantage Ch2: The Economic Problem Lecture 1: Comparative and absolute advantage 4 Example: Cleaning Business Two people who own a cleaning business 4 12 3 10 # of bathrooms cleaned per hour # of beds made per hour Scott Caroline Ch2: The Economic Problem Lecture 1: Comparative and absolute advantage 5 What are the costs? Scott’s costs:
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251Ch2lecture1Notes - 8/22/2011 Costs Vary Across...

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