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10 Apr 2011
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Opportunity cost = 10/5= 2 gumdrops of one chocolate. Note: straight-line (linear) ppf implies that these oc do not change along the ppf www. notesolution. com. For an example of a production possibilities frontier that is not linear, see mankiw, chapter 2, pg 26-28. An individual (or country) has a comparative advantage in an activity if the individual (or country) can perform that activity at a lower opportunity cost than anyone else. The existence of comparative advantage is the key to: specialization, the gains from trade. John has absolute advantage in production of cloth (i. e. , is more efficient in the production of cloth) Jane has absolute advantage in production of corn. Oc (1 cloth) = 2/10 = 0. 2 corn. Oc (1 corn) = 10/2 = 5 cloth. Oc (1 cloth) = 4/8 = 0. 5 corn. Oc (1 corn) = 8/4 = 2 cloth.

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