ECO 2121 Lecture Notes - Lecture 2: Opportunity Cost, Wine Gallon
23 Feb 2020
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Difference across countries in labor, labor skills, physical capital, natural resources, and technology. Economies of scale (larger scale of production is more efficient). Sources of differences across countries that lead to gain from trade: The ricardian model examines the differences in the productivity of labor (due to differences in technology) between countries. The heckscher-ohlin model examines differences in labor, labor skills, physical capital, land, or other factors of production between countries. The ricardian model uses the concepts of opportunity cost and comparative advantage. The opportunity cost of producing something measures the cost of not being able to produce something else with the resources used. For example, a limited number of workers could produce wither roses or computers. The opportunity cost of producing computers is the amount of roses not produced. The opportunity cost of producing roses is the amount of computers not produced.
