New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Micro Chapter 2 Comparative Advantage

by: Sophomore Notetaker

Micro Chapter 2 Comparative Advantage ECON 1011

Marketplace > Washington University in St. Louis > Economics > ECON 1011 > Micro Chapter 2 Comparative Advantage
Sophomore Notetaker
Wash U

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

book notes
Class Notes
25 ?




Popular in Microeconomics

Popular in Economics

This 3 page Class Notes was uploaded by Sophomore Notetaker on Saturday October 1, 2016. The Class Notes belongs to ECON 1011 at Washington University in St. Louis taught by Bandyopadhyhyay in Fall 2016. Since its upload, it has received 4 views. For similar materials see Microeconomics in Economics at Washington University in St. Louis.


Reviews for Micro Chapter 2 Comparative Advantage


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 10/01/16
Chapter 2: Comparative Advantage Exchange and Opportunity Cost  Absolute Advantage – one person has an absolute advantage over another if he or she  takes fewer hours to perform a task than the other person  Comparative Advantage – one person has a comparative advantage over another if  his/her opportunity cost of performing a task is lower than the other person’s opportunity  cost  Ex: it takes Mary 20 min. to program and 10 min. to fix a bike and Paula 30 min. for each of those. Mary has an absolute advantage over Paula in both activities since she can both  do them faster.  o But, Paula has a comparative advantage over Mary at programming. Paula’s  opportunity cost of programming is 1 bike repair, whereas Mary’s opportunity  cost of programming is 2x as high as Paula’s (2 bike repairs) o Mary has a comparative advantage over Paula at bike repairs since the  opportunity cost of doing a bike repair is 0.5 web pages, whereas Paula has an  opportunity cost of 1 web page per bike repair  The Principle of Comparative Advantage – Everyone does best when each person (or  each country) concentrates on the activities for which his/her opportunity cost is lowest Comparative Advantage and Production Possibilities  Production Possibilities Curve (PPC) – a graph that describes the maximum amount of  one good that can be produced for every possible level of production of the other good o Down­ward slope shows the scarcity principle (idea that resources are limited) o Attainable point – any combination of goods that can be produced using currently available resources o Unattainable point – any combination of goods that cannot be produced using  currently available resources o Inefficient Point – any combination of goods for which currently available  resources enable an increase in the production of one good without reduction in  the production of the other o Efficient Point – any combination of goods for which currently available  resources do not allow an increase in the production of one good without a  reduction in the production of the other o The slope of the PPC tells us the opportunity cost of producing an additional unit  of the good measured along the horizontal axis o Ex: PPC – all combinations of coffee and nuts that can be produced with Tom’s  labor  Coffee on one axis and nuts on the other axis  Points that lie along or within the curve are attainable  Points that lie outside the curve are unattainable  Points that lie along the curve are efficient  Points that lie within the curve are inefficient   PPC for a Large Economy –has a gentle outward bow shape o The bow shape means that the opportunity cost of producing nuts increases as the  economy produces more of them (p. 46)  The Principle of Increasing Opportunity Cost (Low­Hanging Fruit Principle) – In  expanding the production of any good, first employ those resources with the lowest  opportunity cost, and only afterward turn to resources with higher opportunity costs Factors That Shift the Economy’s Production Possibilities Curve/ Sources in Economic Growth  Economic growth is an outward shift in the economy’s PPC. It can result from increases  in the amount of productive resources available or from improvement in knowledge or  technology that render existing resources more productive  Investment in New Factories and Equipment o When workers have more and better equipment, their productivity increases  Population Growth o But, because it also generates more mouths to feed, it can’t by itself raise a  country’s standard of living; it may even cause a decline  Improvements in Knowledge and Technology o Lead to higher output through increased specialization o Often increase spontaneously; frequently directly/indirectly the results of  increases in education Specialization  Capitalizes on preexisting differences in individual skills and deepens those skills  through practice and experience Eliminates many of the switching and start­up costs people incur when they move back  and forth among numerous tasks (also applies to tools/equipment); breaking down a task  into simple steps, each performed by a different machine, greatly multiplies the  productivity of individual workers Why have some countries been slow to specialize? o Philosopher Adam Smith said that population density is an important factor that  influences the degree of specialization  Low population density is an obstacle since in some countries like Nepal,  with its rugged terrain and long treacherous traveling to get to another  village o May also be impeded by laws and customs that limit people’s freedom to transact  freely with one another Having too much specialization would become to repetitive and machine­like and boring Comparative Advantage and International Trade North American Free Trade Agreement (NAFTA) – a treaty to reduce barriers between  the U. S. and neighbors north and south o Many people opposed to it o Reducing barriers to international trade increases the total value of goods and  services produced in each nation, but it doesn’t guarantee that each individual  citizen will do better Outsourcing – having services performed by low­wage workers overseas o Cost savings benefit consumers and companies in the U.S., but jobs in the U.S.  may be put in jeopardy o Computerizing tasks (breaking down into rules) are vulnerable to outsourcing  Ex: ATM machines replaced some bank teller jobs o Face­to­face communication, jobs that are less rules­ based, or that require  someone to be physically present (repairs, construction) are the safest from  outsourcing  having a good education enables you to have a comparative advantage over others with  less education


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Kyle Maynard Purdue

"When you're taking detailed notes and trying to help everyone else out in the class, it really helps you learn and understand the I made $280 on my first study guide!"

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.