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Menu_29_Aug_11 - Assumptions a Two Countries England...

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TODAY’S MENU: Monday 29 August 2011 I. BUSINESS A. Practice Problems 1. Chapter 2: 1, 2, 4-8, 10 II. SUBSTANCE A. Note on graphing: Appendix to Chapter 2 B. Opportunity Cost Application: International Trade 1. Questions to Answer a. If “workers in the United States are the most productive in the world,” why do we consume so many imported goods? b. If “trade can make everyone better off,” why is there so much opposition to it? 2. Tool: Production Possibilities Frontier (PPF) a. Efficiency b. Numerical Slope = Opportunity Cost c. Optimal Point? d. Economic growth C. How Trade Can Benefit All: An example 1.
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Unformatted text preview: Assumptions a. Two Countries: England, Portugal b. Two Homogeneous Goods: Wine, Cloth c. All workers in a country are equally productive d. Resources: 100 worker/hours in each country 2. Relevant Concepts a. Productivity = output per worker per hour b. Absolute Advantage = highest productivity c. Comparative Advantage = lowest opportunity cost 3. Autarky: production = consumption 4. Specialization and trade according to Comparative Advantage 5. With Trade: consumption > production 6. Conclusions III. NEXT TIME A. Begin Chapter 4: “Supply and Demand”...
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