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Week 1 Notes

by: Daniel Ochs

Week 1 Notes econ 1

Daniel Ochs
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About this Document

Economics notes for week 1.
Principles of Economics
Class Notes




Popular in Principles of Economics

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This 2 page Class Notes was uploaded by Daniel Ochs on Friday April 1, 2016. The Class Notes belongs to econ 1 at University of California - Los Angeles taught by Convery in Spring 2016. Since its upload, it has received 39 views. For similar materials see Principles of Economics in Economcs at University of California - Los Angeles.


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Date Created: 04/01/16
Thursday, March 31, 2016 Week 1 - Opportunity Cost: the value of the next best alternative forgone when an action is taken • Chose option A but option B is next best option and your opportunity cost - Production Possibility Frontier (PPF): table, graph, or equation that shows the different combinations of outputs that can be produced from a given set of resources (inputs) and technology • In our model: - 1 input (labor) - 2 outputs (soybeans and textiles) - 2 countries (A and B) • Givens - Country A: 800 labor hours available (La = 800 hours) - Country B: 800 labor hours available (Lb = 800 hours) - For Country A: Soybeans take 2 hours to produce one unit and textiles take 1 hour to produce one unit - For Country B: Soybeans take 8 hours to produce one unit and textiles take 2 hours to produce one unit - Derivation of each country’s PPF • Trial-and-error approach - For Country A: • end possibilities are 800 hours dedicated to only soybeans (400 hours of output) or 800 hours dedicated to only textiles (800 hours of output) • middle possibility is 400 hours dedicated to soybeans (200 hours of output) and 400 hours dedicated to textiles (400 hours of output) • “Short-cut” approach - For Country B: 1 Thursday, March 31, 2016 • 100 hours of output if labor hours only for soybeans and 400 hours of output if labor hours only for textiles • [Footnote] math - Labor hours of Country = Labor hours used in production of S + Labor hours used in production of T - For Country B: • 800 = 8S + 2T - T = 200 - S = 50 Absolute Advantage and Comparative Advantage • • Absolute Advantage: Refers to which country can produce a given unit of goods with fewer labor hours (or) [can produce the most of a good with 1 unit of Labor] - Which Country has absolute advantage in production of soybeans (S): Country A - Which Country has absolute advantage in production of Textiles (T): Country A Comparative Advantage: Refers to which country can produce a good at a lower • opportunity cost • [Opportunity cost of producing one unit of S is the number of Ts could have been producing with that labor] - A: Opportunity Cost = Hours per S / Hours per T (2/1=2) - Which Country has comparative advantage in production of soybeans (S): Country A - Which Country has comparative advantage in production of Textiles (T): Country B - Slope of PPF: opportunity cost of goods labeled on horizontal axis • Opportunity cost of S: Rise/Run = Labor Hours per T / Labor Hours per S - No Trade Scenario • Given: Assume in a world where A and B do not trade that A prefers the combination of S = 300 labor hours (T would equal 200 labor hours) 2


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