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Economics 2314

by: Taylor Wall

Economics 2314 Econ 2314

Taylor Wall
Texas State
GPA 3.06
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About this Document

These notes are just from this first week of class. Chapter 1 and 2
Principles of Economics
Dr. Bruce McClung
Class Notes
comparative, absolute, advantage




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This 3 page Class Notes was uploaded by Taylor Wall on Saturday September 3, 2016. The Class Notes belongs to Econ 2314 at Texas State University taught by Dr. Bruce McClung in Fall 2016. Since its upload, it has received 7 views. For similar materials see Principles of Economics in Finance and Economics at Texas State University.

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Date Created: 09/03/16
9-3-16 Economics 2314 Ch. 1  What can economics do for you?  o Scarcity­ limited resources and unlimited wants.   Requires a choice to be made: the choice between what  you are doing and what you could be doing is referred to  as Opportunity Cost. o Opportunity Cost­ to do one thing requires that you exclude  other opportunities that were possible during that time.   EXAMPLE: Attending class instead of staying in bed  and sleeping. Opportunity cost represents the second  most attractive alternative; in other words, the  Opportunity Cost is what you’re choosing not to do, but  would be doing if the situation was different  You cost yourself the opportunity of sleeping, by  choosing school instead; depicts that time is linear. o How to make a choice?  Random Choice­   EXAMPLE: playing the game we all played as  children, “She loves me, she loves me not” while  picking petals off a flower; represents that you’re  allowing a flower to make the decision for you.   Consider past behavior Ch. 2  Why do people trade? o Advantages­   Comparative advantage: when one person has a lower  opportunity cost of performing a task as compared to  another person performing the same task.   Absolute advantage: when one person can perform the  task “better” than another person.  9-3-16  EXAMPLE of Comparative and Absolute Advantage: o Ryan and Chase are each performing 2 tasks: washing dishes  and folding shirts.  TASK LOADS OF DISHES FOLDING SHIRTS RYAN 6 loads in 1 hr. 30 shirts in 1 hr. CHASE 2 loads in 1 hr. 20 shirts in 1 hr.   Looking at the information in the chart, one can automatically assume  that Ryan has the absolute advantage because he’s “better” at washing dishes and folding shirts. However, he can’t do both tasks in the same  hour so we need to establish who has the comparative advantage in  which task so that both tasks are being completed with the least  amount of Opportunity Cost.   CALCULATING COMPARATIVE ADVANTAGE:  o Steps for Ryan:  To find the advantage of doing dishes vs. folding shirts,  divide his initial 6 loads of dishes per hour by 6 to make  it 1.  Then divide the other column (folding shirts) by 6  as well to get 5.   Take the RECIPROCAL of 5 to get 1/5. o Taking the reciprocal of the first set of data  represents the advantage of folding shirts to  doing dishes. o Another way of getting 1/5 without taking  the reciprocal would be to divide 30 shirts  by 30 to get 1, and then divide 6 loads of  dishes by 30 as well to get 1/5.   This represents that for Ryan, doing 1 load of dishes  “costs” him 5 folded shirts, and comparatively; folding 1  shirt “costs” him 1/5 loads of dishes.  o   Steps for Chase:  To find the advantage of doing dishes vs. folding shirts,  divide his initial 2 loads of dishes by 2 to get 1.  Then divide 20 by 2 as well to get 10. 9-3-16  Follow the steps above about taking the reciprocal  to get the advantage of folding shirts to doing  dishes.  o That would result in a reciprocal of 1/10.  This represents that for Chase, doing 1 load of dishes  “costs” him 10 folded shirts, and comparatively; 1 folded shirt “costs” him 1/10 loads of dishes.   EXPLANATION: o Ryan has the comparative advantage in loads of dishes.  If Ryan washes dishes, only 5 shirts don’t get folded.   If Chase washes dishes, 10 shirts don’t get folded.  o Chase has the comparative advantage in folding shirts because  1/5 of the dishes that Ryan didn’t get done is greater than 1/10  of the dishes that Chase wasn’t able to complete, and therefore  Chase’s Opportunity Cost is lower. o In conclusion: Chase is not good at either task, but he is less  worse at folding shirts than doing dishes. 


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