Comparative Advantage Lecture

Comparative Advantage Lecture - Topic 3 Comparative...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Topic 3 Comparative Advantage
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
We will now look for the answers to these questions: Why do people—and nations—choose to be economically interdependent? How can trade make everyone better off? What is absolute advantage? What is comparative advantage? How are these concepts similar? How are they different?
Background image of page 2
Interdependence Every day you rely on many people from around the world, most of whom you’ve never met, to provide you with the goods and services you enjoy. coffee from Kenya dress shirt from China cell phone from Taiwan hair gel from Cleveland, OH
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Interdependence s One of the Ten Principles we studied: Trade can make everyone better off. s We now learn why people—and nations— choose to be interdependent, and how they can gain from trade.
Background image of page 4
Our Example s Two countries: the U.S. and Japan s Two goods: computers and wheat s One resource: labor, measured in hours s We will look at how much of both goods each country produces and consumes s if the country chooses to be self-sufficient s if it trades with the other country
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Production Possibilities in the U.S. s The U.S. has 50,000 hours of labor available for production, per month. s Producing one computer requires 100 hours of labor. s Producing one ton of wheat requires 10 hours of labor.
Background image of page 6
4,000 100 5,000 2,000 1,000 3,000 500 200 300 400 0 Computers Wheat (tons) The U.S. PPF The U.S. has enough labor to produce 500 computers, or 5000 tons of wheat, or any combination along the PPF.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4,000 100 5,000 2,000 1,000 3,000 500 200 300 400 0 Computers Wheat (tons) The U.S. Without Trade Suppose the U.S. uses half its labor to produce each of the two goods. Then it will produce and consume 250 computers and 2500 tons of wheat.
Background image of page 8
Application Application 1 Derive Japan Derive Japan s PPF s PPF Use the following information to draw Japan’s PPF. s Japan has 30,000 hours of labor available for production, per month. s Producing one computer requires 125 hours of labor. s Producing one ton of wheat requires 25 hours of labor. Your graph should measure computers on the horizontal axis.
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Computers Wheat (tons) 2,000 1,000 200 0 100 300 Japan’s PPF Japan has enough labor to produce 240 computers, or 1200 tons of wheat, or any combination along the PPF.
Background image of page 10
Computers Wheat (tons)
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/09/2011 for the course ECO 6789 taught by Professor Hu during the Spring '11 term at Campbell.

Page1 / 30

Comparative Advantage Lecture - Topic 3 Comparative...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online