Chap002.3 - Comparative Advantage and Production...

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3 Chapter 2: Comparative Advantage: The Basis for Exchange Slide 13 Comparative Advantage and Production Possibilities ± The Production Possibilities Curve z A graph that describes the maximum amount of one good that can be produced for every possible level of production of another good. Chapter 2: Comparative Advantage: The Basis for Exchange Slide 14 Comparative Advantage and Production Possibilities ± The Production Possibilities Curve z Assume a small economy that ² Produces only two goods - coffee and nuts ² Has only one worker who works 6 hrs/day ² Worker is Susan in one country and Tom in another Chapter 2: Comparative Advantage: The Basis for Exchange Slide 15 Comparative Advantage and Production Possibilities ± The Production Possibilities Curve z For Example Susan: 4 lb coffee/hr 2 lb nuts/hr Tom: 2 lb coffee/hr 4 lb nuts/hr z Opportunity cost for Susan of producing 1 lb of nuts is 2 lb of coffee. z With 6 hours of work in a day, Susan can produce 24 lb of coffee or 12 lb of nuts.
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

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