3 Book Notes – Econ 201

3 Book Notes – Econ 201 - Unless two people...

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3 Book Notes – Econ 201 Every day you rely on many people to provide you with the goods and services you enjoy. Trade can make everyone better off. Trade helps bring variety without extra costs. Cattle Rancher vs. Beef Rancher & the table analysis we did on the PS and in lecture. Production Possibilities Curve is a straight line Specialization & Trade makes both better off. Comparative Advantage why, even though you may have an absolute advantage over someone, they have a comparative advantage over you Absolute Advantage: the ability to produce a good using fewer inputs than another producer ^ Almost “who produces more, straight up” Opportunity Cost: whatever must be given up to obtain some item The opportunity cost measures the trade-off between the two goods that each producer faces Comparative Advantage: the ability to produce a good at a lower opportunity cost than another producer It is impossible for someone to have a comparative advantage in both goods.
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Unformatted text preview: Unless two people have exactly the same opportunity cost, one person will have a comparative advantage in one good, and the other person will have a comparative advantage in the other good. The gains from specialization and trade are based not on absolute advantage but on comparative advantage If we all produce the good that we have the comparative advantage in, it makes the economy better off. Trade can benefit everyone in society because it allows people to specialize in activities which they have a comparative advantage. **For both of the parties to gain from trade, the price at which they trade must lie between the two opportunity costs** Opportunity Cost determines what good you produce or what job you do. Imports: Goods produced abroad and sold domestically Exports: Goods produced domestically and sold abroad Trade allows all countries to achieve greater prosperity...
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