ECON 201 Lecture Notes - Lecture 3: Absolute Advantage, The O.C., Comparative Advantage
24 Feb 2015
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Hours needed to make 1 lb. of. Amount produced in 40 hours. Disregard hour needed to make 1lb. of meat: not interested in hours, interested in quantity of goods produced, farmer. If he makes 2 lbs. of meat, he gives up 4 lbs. of potatoes. If he makes 4 lbs. of potatoes, he gives up 2 lbs. of meat. If he makes 40 lbs. of meat, he gives up 5 lbs. of potatoes. It is cheaper for the farmer to produce potatoes because the oc is less. He has a comparative advantage in producing potatoes. He will specialize in producing potatoes because of this ca. He will trade the potatoes for meat. He exports potatoes for meat and imports meat for potatoes. It is cheaper for the rancher to produce meat because the oc is less. He has a comparative advantage in producing meat. He wills specialize in producing meat because of this ca. Have to cover cost.
