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1BB3 Notes 5.docx

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Department
Economics
Course
ECON 1BB3
Professor
Bridget O' Shaughnessy
Semester
Winter

Description
Lecture # 5 Macroeconomics 1BB3 Date: 17/09/2012 Should you and your roommate divide household chores evenly? Example 1: • There are two interior decorators that can paint and wallpaper. They have 40 hour work weeks. Martha can paint 20 rooms or wallpaper 5 rooms; Stewart can paint 10 rooms or wallpaper 8 rooms. (Constant Opportunity Cost) # Done in 40 Hours Paint Wallpaper Martha 20 5 Stewart 10 8 # Hours Needed to do 1 Room Paint Wallpaper Martha 2 8 Stewart 4 5 Opportunity Cost: • Whatever must be given up to obtain some other items; like going to university instead of working full time. # Opportunity Cost of 1 Room Paint Wallpaper Martha ¼ Wallpaper Room 4 Painted Room Stewart 4/5 Wallpaper Room 5/4 Paint Room • It is useful to put the information into a sentence. AbsoluteAdvantage: • The ability to produce goods with a smaller quantity of inputs. ComparativeAdvantage: • The ability to produce a good with smaller opportunity cost. The comparative advantage tells us what each party should produce in order to maximize efficiency. • NEVER does one party have comparative advantage for in both goods. • Comparative adv
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