Chapter 2

Chapter 2 - Economics 101 Exchange -Generalize or...

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Economics 101 Chapter 2: Comparative Advantage: The Basis for Exchange -Generalize or Specialize? -Generalize -People who do all (or most) of their own tasks -Problem: “Jack of all trades” but “Master of none” -Self-sufficiency is the advantage -Low productivity is the disadvantage -Specialize -Focus on fewer tasks and trade to satisfy wants -Each person is more productive - hence greater total output -Absolute vs. Comparative Advantage -A person has an absolute advantage over another person if the first person takes fewer hours (or use fewer resources) to perform a task than the other person -A person has a comparative advantage over another person if the first person’s opportunity cost of performing the task is lower than the other person’s opportunity cost -Absolute Advantage -Is measured in terms of input sacrificed -Comparative Advantage -Is measure in terms of Opportunity Costs -i.e. output sacrificed -Principle of Comparative Advantage -If each person (or country) concentrates on the activities for which his or her opportunity costs are lowest, then the total combined benefit is the greatest -This is true even if one party has absolute advantage over the others in terms of all activities
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Chapter 2 - Economics 101 Exchange -Generalize or...

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