Macroeconomics Week 2 Notes
Macroeconomics Week 2 Notes econ 22061-002
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This 3 page Class Notes was uploaded by Garrett Anderson on Monday February 15, 2016. The Class Notes belongs to econ 22061-002 at Kent State University taught by Dr. Rohlin in Winter 2016. Since its upload, it has received 15 views. For similar materials see Macroeconomics in Economcs at Kent State University.
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Date Created: 02/15/16
Ch 3. Absolute Advantage the ability to produce a good with fewer resources. Shawn Def. Who is better. Comparative Advantage the ability to produce a good at a lower opportunity cost than another producer. Ricky & Emily Lawn Company Mow lawns & trim trees Ricky: 7 lawns/day 5 trees/day Emily: 8 lawns/day 10 trees/day Emily has absolute advantage in lawns and trees. OC: Trees = lawns/trees. Emily: 8/10 Ricky: 7/5 Ricky has a highest opportunity cost for trees than Emily so Ricky should do lawns. Lawns = trees/lawns Emily: 10/8 Ricky: 5/7 Emily has a higher opportunity cost for lawns than Ricky so Emily should do trees. Windows or iron shirts. Susan: 14 windows/hr 16 shirts/hr Paul: 12 windows/hr 15 shirts/hr Susan has absolute advantage in both. OC: Windows= shirts/windows Susan: 16/14 = 1.14 Paul: 15/12 = 1.25 Susan should do windows because her OC is lower. Paul should iron shirts because his opportunity cost is lower. Fall & Ben Maid Inc. Bathrooms & Bedrooms. Mins it takes to do it. Fall: 20 mins/bathroom 15 mins/bedroom Ben: 15 mins/bathroom 5 mins/bedroom OR Fall: 3 bathrooms/hr 4 bedrooms/hr Ben: 4 bathrooms/hr 12 bedrooms/hr Ben has Absolute Advantage Bathroom = bedroom/bathroom Fall: 4/3 = 1.33 Ben: 12/4 = 3 Fall should do bathrooms because his OC is lower. Ben should do bedrooms because her OC is lower. Ea. has 20 workers Cornland: 45 corn and 15 wheat Wheatland: 8 corn and 60 wheat Before trade: ea. spend half the time on ea. thing. (10 workers assigned to ea. product) Cornland: 45*10 workers = 450 corn 15*10 workers = 150 wheat Wheatland: 8* 10 workers = 80 corn 60*10 workers = 600 wheat Specialize: Cornland: 45*20 workers = 900 Corn 15* 0 workers = 0 wheat Wheatland: 8*0 workers = 0 corn 60*20 workers = 1200 wheat 1) How much stuff does one country have after trade? 300 corn for 300 wheat What quantities does cornland have? 600 corn and 300 wheat 2) What is the combined total output after specialization? Cornland: 900 corn & 0 wheat Wheatland: 0 corn & 1200 wheat Total: 900 corn & 1200 wheat 3) What is the combined gains from trade (specialization)? Before trade total: 450 + 80 corn = 530 corn 120 + 600 wheat = 620 wheat Combined gains from trade: 900 – 530 = 370 corn 1200 – 620 = 580 wheat
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