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ECO 211 PPF, Absolute/Comparative Advantage

by: May Thu

ECO 211 PPF, Absolute/Comparative Advantage ECON 221

Marketplace > University of Miami > Economcs > ECON 221 > ECO 211 PPF Absolute Comparative Advantage
May Thu
GPA 3.8

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The notes include detailed explanation of the PPF graph. There are also instructions and sample problems to explain absolute advantage and comparative advantage. The notes have detailed and easy-to...
Economic Principles and Problems 211
David Spigelman
Class Notes
Microeconomics, curves, absolute advantage, Production Possibility Frontier, comparative advantage
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This 4 page Class Notes was uploaded by May Thu on Sunday February 7, 2016. The Class Notes belongs to ECON 221 at University of Miami taught by David Spigelman in Spring 2016. Since its upload, it has received 34 views. For similar materials see Economic Principles and Problems 211 in Economcs at University of Miami.


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Date Created: 02/07/16
Friday, May 20, y Week 4  Eco 211 ­ Production Possibility Frontier (PPF) • Sloping down because of diminishing returns  • Shows maximum output possibilities for two goods  • Y intercept: maximum output for Product A  • X Intercept: maximum output for Product B  ­ Absolute Advantage  ­ country’s ability to produce a  certain good more efficiently than  the other country (Who can  produce more of Product A? Who  can produce more of Product B?) ­ US has an Absolute Advantage in  making Laptops (3 is greater than  2 (China’s production of laptops)) ­ China has an Absolute Advantage is making Cars (6 is greater than 2 (US’s  production of cars))  1 Friday, May 20, y ­ ­ Efficiency: “How big?” Maximizes welfare ­ Equity: Who gets what? ­ Trading can have winners and losers  ­ Autarky: absence of trade  ­ Comparative Advantage  ­ Countries should tend to specialize in industries that take advantage of their  relative factor endowments (Inputs: natural resources, labor, human capital) and  specialize to be made better off ­ Steeper slope: has comparative advantage in product on Y axis ­ Flatter slope:  has  comparative  advantage in  product on X  axis  ­ Comparative  Advantage  Example  Problem 2 Friday, May 20, y • Which has the absolute advantage in making guns? • No one. Both countries will produce 3 in autarky  • Comparative Advantage  • Swaziland: Guns • Swaziland has a steeper slope and has a comparative advantage in the Y axis  product, guns • Madagascar: Butter • Madagascar has a flatter slope and has a comparative advantage in the X axis  product, butter  • What is the opportunity cost of producing 2 guns in Swaziland? *  Multiply (2 guns) by (1 butter/ 3 guns) to cancel out the guns algebraically, so that we are left with just the butter • What is the opportunity cost of producing 1 gun in Madagascar? 3 Friday, May 20, y * Multiply (1 gun) by (2 butter/ 3 guns) to cancel out the guns algebraically, so that we are left with just the butter 4


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