ECO102H1 Lecture Notes - The Intercept, Absolute Advantage, Comparative Advantage

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14 Apr 2014
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ECO102H1 Full Course Notes
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ECO102H1 Full Course Notes
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Chap 32 - issues with fiscal policy =>don"t have to know. Jane has an absolute advantage over john. We are worried about oc producing cloth and corn. John has the comparative advantage in the production of cloth. Gives up less corn than jane when he is producing. Jane has the comparative advantage in the production of corn. She can produce corn at a lower oc than john. Jane has the absolute advantage in the production of both cloth and corn. She can produce more cloth and more corn in any given week. There are possible gains from trade whenever there is a comparative advantage. Having a absolute advantage means that jane may not completely specialize. John will specialize in the production of cloth. Jane will specialize in the production of corn. Assume the trade ratio is 3 cloths to 1 corn. Because of trade, john and jane can consume beyond their ppf (production possibility frontier)

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