ECON 110 Microeconomics Chapter 3 Notes
ECON 110 Microeconomics Chapter 3 Notes ECON 110
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This 2 page Class Notes was uploaded by Lauren Heller on Thursday January 14, 2016. The Class Notes belongs to ECON 110 at University of Alabama - Tuscaloosa taught by Dr. Harold elder in Summer 2015. Since its upload, it has received 43 views. For similar materials see Principles of Economics in Economcs at University of Alabama - Tuscaloosa.
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Date Created: 01/14/16
Mirco- Econ Chapter 3 Notes Absolute advantage- comparing the productivity of one firm, person, or nation Who can make more in less time Comparative advantage- opportunity cost faced by two producers Producer who gives up less of one good to produce the other good Countries import goods in which they don’t have the comparative advantage in Countries export goods they have the comparative advantage in When comparative advantage (opportunity cost) of both countries is equal no gains from trade Production possibilities frontier- a graph that shows the various combinations of outputs that the economy can possibly produce given the available factors of production and technology For both parties to gain from trade the price at which they trade MUST lie between the two opportunity costs Imports- goods produced abroad and sold domestically Exports- goods produced domestically and sold abroad Example of Absolute and Comparative Advantage England has the absolute advantage in wine because they can produce 120 bottles and Portugal can only produce 80 England has the absolute advantage in cloth because they can produce 100 clothes and Portugal can only produce 90 England has the comparative advantage in wine because their opportunity cost to make one unit of wine is 5/6 of a cloth, which Portugal’s opportunity cost to make one unit of wine is 9/8 units of cloth Portugal has the comparative advantage in cloth because their opportunity cost to make one unit of cloth is 8/9 unit of wine, which England’s opportunity cost to make one unit of cloth is 6/5 units of cloth England will export wine, and Portugal will import wine Portugal will export cloth, and England will import cloth
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