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CompadvantageNov28

CompadvantageNov28 - Comparative advantagethe basis for...

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Comparative advantage—the basis for specialization and trade
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Announcement: Please check the clicker rat at the class website to see that your clicker attendance is being recorded. A few people do not have their correct perm numbers entered. Let me know if the ID number entered in your clicker is not your perm number.
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A primitive economy There are two goods, bread and meat, and two people, Alice and Bob. Alice and Bob both work 12 hours per day. It takes 2 hours for Alice to make a loaf of bread and 4 hours to catch a rabbit. It takes 4 hours for Bob to make a loaf of bread and 2 hours to catch a rabbit.
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Alice alone Alice has not yet met Bob. She divides her time between making bread and catching rabbits. What is possible for her? How long does it take to make B loaves of bread and R rabbits? 2B+4R In 12 hours, Alice can produce any combination such that 2B+4R=12
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Possible Consumptions for Alice Alone Bread Rabbits 3 For Alice, possibilities are given by the equation 2B+4R=12. If she only made bread, she could have 6 loaves. If she only caught rabbits, she’d catch 3. 6
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Alice diversifies Bread Rabbits 3 Alice prefers to have some of each good, rather than to eat only bread. So she spends some time on each. Suppose she wants equal amounts of bread and rabbits. Then 2B+4R=12 and B=R. Solution is B=R=2 6 2 2
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Bob alone Bob divides his time between making bread and catching rabbits. It takes 4 hours to make a loaf of bread and 2 hours to catch a rabbit. How long does it take to make B loaves of bread and R rabbits? 4B+2R In 12 hours, Bob can produce any combination such that 4B+2R=12
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Possible Consumptions for Bob Alone Bread Rabbits 3 For Bob, possibilities are given by the equation 4B+2R=12. If he made only bread, he could have 3 loaves. If she only caught rabbits, he’d catch 6. 6
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Bob diversifies Bread Rabbits 3 Suppose Bob wants equal amounts of bread and rabbits.
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