EC120 Lecture 3: EC120_ch03_interdependencegainsfromtrade
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EC120 Full Course Notes
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Interdependence and gains from trade two countries depend on each other to obtain g/s to satisfy the needs and wants of their people. Potato and cattle farmers they could choose to be self-sufficient and consume what they produce; or they can trade with each other to have a variety of meal choices. Potato and cattle farmers produce what they are good at to increase production outputs a business focuses on producing specific goods to boost efficiency. Definition: producing something with a lower opportunity cost. Less input (time) required to produce both meat and potatoes. Cost whatever must be given up to obtain some item (e. g. ) Who has the comparative advantage for producing meat: rancher losing opportunity of producing potatoes, 2kg vs 4kg (farmer) Who has the comparative advantage for producing potatoes: farmer losing opportunity of producing meat, 0. 25kg vs 0. 5kg (rancher) (*) never answer labour for opportunity cost.
