Lecture 3 - Announcements HW1 due tonight at 11:45pmsign up...

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Announcements HW1 due tonight at 11:45pm—sign up for Aplia if you have not (you do not need to have a book to do this)! Sign up for the section that corresponds to your class time. In Aplia, only the assignments marked “graded” are graded. The readings are there just to let you know where we are in the book (also, some of the questions refer to the book – look at the online chapters if you need to). iClicker scores start to count TODAY. Not a big deal if you miss one day but get one soon!
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A Puzzle Ice cream stores like to have occasional “free ice-cream” days. They’ve noticed that more people show up for free ice-cream in poor neighborhoods than in rich neighborhoods. Does this mean that rich people like ice- cream less?
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More on Opportunity Costs: Comparative and absolute advantage: Absolute advantage: To be “absolutely” better at something. Comparative advantage: To be “comparatively” better at something (I know, not very useful). Let’s consider an example.
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Comparative and absolute advantage, a simple example o You and your roommate need to do two things: cook and clean. o Your roommate is a great cook and a really fastidious cleaner. o You are a decent cleaner (but not as good as your roommate) and you can not cook at all. o So your roommate has an “absolute advantage” in both cooking and cleaning. o Does this mean that when you divide up
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Specialization No! The “law of specialization” says that each person should do what they have a “comparative advantage” in. Since you can’t cook at all, you are comparatively better at cleaning, so you have a “comparative advantage” in cleaning. Leave the cooking to your roommate and do the cleaning.
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More formally: absolute advantage A producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources. comparative advantage A producer has a comparative advantage over another in the production of a good or service if it can produce that product at a lower opportunity cost .
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OPPORTUNITY COST Colleen and Bill want to maximize their production subject to the constraint that the number of logs and bushels of food are the same. Here Colleen spends 15 days on each but Bill spends 20 days collecting wood and 10 collecting food. By specializing in what they
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Lecture 3 - Announcements HW1 due tonight at 11:45pmsign up...

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