02 comparative advantage PPT

Those ten persons therefore could make among them

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Unformatted text preview: in a pound upwards of four thousand pins of middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day...” 15:49:02 Allows both trading partners to benefit from trade. Suppose that the U.S. can produce more shoes than Indonesia per worker. It doesn’t imply it makes sense for the U.S. to make all its own shoes. 9 15:49:02 10 (3) Comparative advantage (3) Comparative advantage Frank, Robert H., and Ben S. Bernanke, 2010, Principles of Microeconomics, 4th edition, pp. 39: “The Principle of Comparative Advantage: Everyone does best when each person (or each country) concentrates on the activities for which his or her opportunity cost is lowest. Frank, Robert H., and Ben S. Bernanke, 2010, Principles of Microeconomics, 4th edition, pp. 44-47: Two persons – Susan and Tom Two goods – Coffee and Nuts Indeed, the gains made possible from specialization based on comparative advantage constitute the rational for market exchange. They explain why each person does not devote 10 percent of his or her time to producing cars, 5 percent to growing food, 25 percent to building housing, 0.0001 percent to performing brain surgery, and so on.” 15:49:02 15:49:02 One input factor – work time 11 15:49:02 the Model 12 2 Tom’s productivity: 2 lbs Without Trade the Model Susan’s consumption : 8 lb coffee + 8 lb nuts Tom’s consumption : 8 lb coffee + 8 lb nuts per hour 4 lbs Production Possibility Frontier / Production Possibility Curve 6 hours per hour Coffee Coffee Susan's PPF Absolute Susan’s productivity: advantage 20 per hour 2 lbs per hour 20 slope = −2 13 slope =...
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