ECON 110 Lecture Notes - Lecture 5: Candela, Absolute Advantage, Demand Curve

• School: Queen's University
• Department: Economics
• Course: ECON 110
• Professor: Ian James Cromb

Document Summary

Uk and us can only produce wheat and kloth. What one worker can produce in either country is given in the table on the right. Thus, us exhibits absolute advantage in both w and k. 1w is the opportunity cost of k in the uk. Thus, in the uk, one more k can be obtained at the expense of one less heat whereas, in the. Us, the opportunity cost of one more k is 2w. Concave curve increasing opportunity cost increases and there would be no increasing comparative advantage. Countries typically respond to world prices in their export and import decisions rather than bartering with other. The country on the right, with a curved ppf, will produce and consume at pre-trade bundle a in autarky whereas, with free trade, will produce at b and consume around c depending on consumer preferences. B has the same slope as a and is a tangent of the curve.