Chap002.1 - ± The Principle of Comparative Advantage z...

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1 Comparative Advantage: The Basis for Exchange Chapter 2: Comparative Advantage: The Basis for Exchange Slide 2 Exchange and Opportunity Cost Should Johnnie Cochran write his own will? z Cochran earns more than $1,000 per hour. z The cost of having a will prepared is less than $800. Chapter 2: Comparative Advantage: The Basis for Exchange Slide 3 Exchange and Opportunity Cost Absolute Advantage z One person has an absolute advantage over another if he or she takes fewer hours to perform a task than the other person. Chapter 2: Comparative Advantage: The Basis for Exchange Slide 4 Exchange and Opportunity Cost Comparative Advantage z One person has a comparative advantage over another if his or her opportunity cost of performing a task is lower than the other person’s opportunity cost. Chapter 2: Comparative Advantage: The Basis for Exchange Slide 5 Exchange and Opportunity Cost
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Unformatted text preview: ± The Principle of Comparative Advantage z Should Paula update her own web page? Time to update Time to update web page Time to complete Time to complete bicycle repair Paula 20 minutes 10 minutes Beth Beth 30 minutes 30 minutes Chapter 2: Comparative Advantage: The Basis for Exchange Slide 6 Exchange and Opportunity Cost ± The Principle of Comparative Advantage z Should Paula update her own web page? Opportunity Cost of updating a web page updating a web page Opportunity Cost of a bicycle repair bicycle repair Paula 2 bicycle repairs 0.5 web page updates 0.5 web page updates Beth Beth 1 bicycle repair 1 bicycle repair 1 web page update 1 web page update...
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