5 Chapter 2: Comparative Advantage: The Basis for Exchange Slide 25 Production With Specialization Nuts (lb/day)0 12 24 12 24 Susan’s Production Possibilities Curve Tom’s comparative advantage is in nuts so he specializes in nuts and produces 24 lbs Susan’s comparative advantage is in coffee so she specializes in coffee and produces 24 lbs Susan gives Tom 12 lbs of coffee for 12 lbs of nuts E Tom’s Production Possibilities Curve Coffee (lb/day) Chapter 2: Comparative Advantage: The Basis for Exchange Slide 26 ± The gains from specialization grow larger as the difference in opportunity cost increases z For Example Susan: 5 lb coffee/hr 1lb nuts/hr Tom: 1 lb coffee/hr 5 lb nuts/hr Comparative Advantage and Production Possibilities Chapter 2: Comparative Advantage: The Basis for Exchange Slide 27 ± Without Specialization Tom: 5 hrs coffee = 5 lb 1 hr nuts = 5 lb Susan: 1 hr coffee = 5 lb 5 hrs nuts = 5 lb Total: 10 lb 10 lb ± With Specialization Tom: 0 lb coffee 30 lb nuts Susan:
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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.