OpportunityCostComparativeAdvantageandTermsofTrade.pdf Econ 102
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This 2 page One Day of Notes was uploaded by Supriya Nair on Monday December 1, 2014. The One Day of Notes belongs to Econ 102 at Pennsylvania State University taught by Dr. Geerling in Fall. Since its upload, it has received 83 views. For similar materials see Microeconomics in Economcs at Pennsylvania State University.
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Clutch. So clutch. Thank you sooo much Supriya!!! Thanks so much for your help! Needed it bad lol
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Date Created: 12/01/14
Opportunity Cost 0 The highest valued alternative that must be sacrificed in order to get something else 0 Not all the alternatives just the next best choice The value of the tradeoff is represented by the opportunity cost Opportunity cost is if i give up A then what am I losing in B Trade offs is when you have to choose between two Opportunity costs will not be constant 0 Law of increasing relative cost Increasing oc of production as you produce more of that good Produce more of good A give up increasingly larger amounts of good B For example Person Pizza Wings Debra 60 120 Mike 24 72 Opportunity Cost Person 1 Pizza 1 Wing Debra 120602wings 60120 12 pizza if she makes wings then gives up half a pizza Mike 72243 Wings if he makes one pizza 3 wings are sacrificed 2472 13 whatever you are trying to finding the opportunity cost FOR is always the DENOMINATOR in the fraction Deb s opportunity cost is less when it comes to pizza she as advantage Mike39s opportunity cost is lower for wings and has comparative advantage Debra Comparative advantage in pizza production 0 She gives up fewer wings than Mike Mike comprtive advantage in wing production 0 He gives up fewer pizzas than Debra Terms of Trade 0 The relative prices or exchange rate of goods 0 How many wings per pizza Debra 1 pizza equals 2 wings 1250 Terms of trade 19 wings for 47 wings 19247240 Mike 1 pizza equals 3 wings 13033 If mike says ill give you 1 pizza for 1 wing mike is ripping her off because she gives up one pizza she gets 2 wings If Debra says i ll give you 1 pizza for 4 wings debra is ripping him off he s just better off making it himself mike only has to give up 3 she s telling him to give up 4 1 Figure out Opportunity cost 2 then Comparative advantage 3 then ratio Terms of trade 0 as long as the terms of trade are between the opportunity costs of the threading partners the trade benefits both sides If the ratio is higher than 50 than Debra won t want to trade if ratio is lower than 33 then mike won t wanna trade
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