EC120 Lecture Notes - Lecture 3: Sidney Crosby, Jack D. Fischer, Absolute Advantage
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EC120 Full Course Notes
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Summary: each person consumes goods and services produced by many other people, both in our country and around the world. Interdependence and trade are desirable because they allow everyone to enjoy a greater quantity and variety of g/s: there are two ways to compare the ability of two people in producing a good. The person who can produce the good with the smaller quantity of inputs is said to have an absolute advantage in producing the good. The person who has the smaller opportunity cost of producing the good is said to have a comparative advantage. Economists use the principle of comparative advantage to advocate free trade among countries. Extra lecture notes: production technology = turning # of inputs into outputs (ex. 10 hours/computer: consuming same amount as production if self-sufficient/no trade and consume all that is produced (assumption that everything being made is being used up, absolute advantage is not necessary for comparative advantage.
