CA407sp1006 - (8/5) S (D/5S) (8/5) S (D/6S) 1G (D/4G)...

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Spring 2010 MGMT 407.06 Classroom Comparative Advantage Example Units/Day Madagascar Somalia Gold 3 4 Silk 5 6 Opportunity Cost Table M S G 1G = _5/3_ S 1 C = _(3/2) S 5/3 > 3/2, Choose lower opp cost, i.e. S makes G (1/3) Day = (1/3) D (5S/D) (1/4) Day = (1/4) D (6S/D) S 1S = _ 3/5_ G 1 S = _(2/3)_ G 3/5 < 2/3, Choose lower opp cost, i.e. M makes S (1/5) Day = (1/5) D (3G/D) (1/6) Day = ((1/6) D (4G/D) Arbitrarily choose Gold as numeraire 1G = ________(3/2) TO (5/3)________ S, E.G. 1G = (8/5) S FIXED CONSUMPTION (CHOOSE PRODUCT IN WHICH YOU DO NOT HAVE A COMPARATIVE ADVANTAGE AND SEEK LOWEST PROJCTION TIME, LEAVING LEISURE M S MAKE TRADE MAKE TRADE 1G (D/3G)
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Unformatted text preview: (8/5) S (D/5S) (8/5) S (D/6S) 1G (D/4G) (1/3)D = (8/24) D &gt; (8/25) D (8/30) D = (16/60) D &gt; (15/60) D = (1/4) D LEISURE = (1/75) D = 25 (8)/600 24 (8)/600 LEISURE = (1/60) D FIXED PRODUCTION: SEEK THE HIGHEST RETURN FOR PRODUCING YOUR CA PRODUCE (8/5) C 1 G MAKE TRADE MAKE TRADE (8/5) S (3/5) (G/S) 1G 1G (3/2) (S/G) (8/5) S (24/25) G &lt; 1G (3/2) S &lt; (8/5) S GAIN = (1/25) G = (1/25) G (D/3G) = (1/75) D GAIN = (1/10) S = (1/10) S (D/6S) = (1/60) D On graph with numeraire Gold on the horizontal axis 1 DAY IN M MAKES 5S = 5S (2/3) G = (10/3) G 1 DAY IN S MAKES 4G = 4G (5/3)(S/G) = (20/3) S...
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CA407sp1006 - (8/5) S (D/5S) (8/5) S (D/6S) 1G (D/4G)...

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