Chap 2 - Chapter 2 Gains to Specialization and Exchange Learning objectives 1 Understand the nature of production efficiency based on comparative

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
8/28/2010 1 Chapter 2 Gains to Specialization and Exchange Learning objectives ` 1. Understand the nature of production efficiency based on comparative advantage 2 U i di id l d ti ibilit f ti t ` 2. Use individual production possibility frontiers to illustrate the concept of comparative advantage and resulting gains to specialization in production and exchange ` 3. Demonstrate how the resulting shape of the economy- wide production possibility curve illustrates the increasing marginal cost of production
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8/28/2010 2 Costs vary across individuals ` Example: ` Brain surgeon owns a Viper that needs Brain surgeon owns a Viper that needs repair ` Brain surgeon can fix car in 1 hour ` Mechanic needs 2 hours to fix car ` Who should fix the car? Two measures of ability ` Absolute advantage = ` 1) production of a good is achieved in less time or, equivalently, ` 2) more can be produced in the same amount of time ` Comparative advantage = Comparative advantage cost of production is lowest
Background image of page 2
8/28/2010 3 Determining comparative and absolute advantage ` Surgeon has absolute advantage in fixing the car because he can fix it faster ` If brain surgeon makes $1,000/hour and the mechanic charges $100/hour, the mechanic has comparative advantage in fixing the car ` Comparative advantage is the key to producing efficiently, at the lowest cost Two-person, two-task example ` 2 individuals own a cleaning business, Scott and Caroline ` 2 tasks ` Cleaning bathrooms ` Making beds # bathrooms/h # beds/h # bathrooms/hr # beds/hr Scott 4 12 Caroline 3 10
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8/28/2010 4 Absolute Advantage ` Scott can clean more bathrooms in an hour ` Scott has absolute advantage in cleaning bathrooms ` Scott can make more beds in an hour `
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/26/2012 for the course ECON 210 taught by Professor Staff during the Fall '08 term at Purdue University-West Lafayette.

Page1 / 17

Chap 2 - Chapter 2 Gains to Specialization and Exchange Learning objectives 1 Understand the nature of production efficiency based on comparative

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online