Lecture+2+September+8+_with+additional+slides_

Lecture+2+September+8+_with+additional+slides_ - Todays...

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Unformatted text preview: Todays Agenda Production Possibility Curves Opportunity Cost An Application of Opportunity Cost Reasoning: The Surprising Principle of Comparative Advantage Production possibility curves illustrate some basic economic themes... Scarcity Choice Opportunity cost Productive Resources natural resources human resources produced resources Butter Guns Deriving the Production Possibility Curve Butter Guns a Butter Guns a b Butter Guns a b Butter Guns Butter Guns Production possibility curve Attainable combinations Butter Guns Un attainable combinations x y z Butter Guns Effect of economic growth on PPC Butter Guns Effect of economic growth on PPC Butter Guns 1 1 1 a b c a < b < c Opportunity cost = - slope of PPC Why do we buy and sell? Individuals have different skills. Trade allows them to benefit by specializing . Same principle applies to regions nations Through trade, they can produce just what they make efficiently trade for the rest And consume outside their PPCs Exchange makes both parties better off. David Ricardo 1772-1823 The Principles of Political Economy and Taxation 1817 Labor Productivity in Labor Food Clothing Available U.S. 20 15 100 U.K. 10 20 120 U.S. has higher productivity in food production than the U.K. The U.S. has an absolute advantage in food. U.K. has higher productivity in clothing production than the U.S. The U.K. has an absolute advantage in clothing. Labor Productivity in Labor Food Clothing Available U.S. 20 15 100 U.K. 10 20 120 U.S. has higher productivity in food production than the U.K. The U.S. has an absolute advantage in food....
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Lecture+2+September+8+_with+additional+slides_ - Todays...

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