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microbook_3e-page26 - Bills Specialization Gathering Food A...

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Bill’s Specialization Æ Gathering Food x A person (country) should specialize in producing a good if its opportunity cost is less than the relative price of that good. o Colleen should not gather food because her opportunity cost of gathering food is greater than the relative price of food. o By contrast, Bill should gather food because his opportunity cost of gathering food is greater than the relative price of food. bushel logs 0.625 bushel log 1 bushel logs 1.2 food of cost opp. s Bill' food of price rel. food of cost opp. s Colleen' ! ! Bill’s Gains from Trade x By specializing in gathering and trading his food for logs, Bill gains more logs (per day of work) than if he cut logs himself. day 1 logs 5 day 1 logs 8 bushel 1 log 1 * day 1 bushels 8 ! Moral of the Story x Even though Colleen can produce both goods more efficiently, she gains by specializing in logs (the good in which she has a comparative
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This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

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