2Agenda1.Basis for Exchange•Comparative Advantage•Specialization and Gains from Trade/Exchange2.Economic System•Role of Government3.The Demand and Supply Model•The Demand Curve•The Supply Curve•Market Equilibrium•Changes to Market Equilibrium
3Production Possibilities and Cost of Production•Consider Crusoe on an island.•Each day, he has 8 daylight hours to gather coconuts and to catch fish•Being self-sufficient, he consumes what he producesHours per dayOutput Per Daygathering coconutsCoconutsFish002422184412666880Cost of ProducingCoconuts =3 Fish per CoconutCoconutsFish218Assume:
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4Production Possibilities and Cost of Production•Fridayworks and lives on the other side of the island.•Each day, he works only 6 hours gathering coconuts and catching fish. His productivity is as follows:•Being self-sufficient, he produces and consumesHours per dayOutput Per Daygathering coconutsCoconutsFish006224442660Cost per Coconut = 1 FishCoconutsFish24Assume: