ECON 160 Lecture Notes - Lecture 4: Comparative Advantage, Absolute Advantage
1 Sep 2016
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Ex: iphone china; cars japan. Two people: trade to increase variety and you can make burgers: bob: patties, max: buns. Case 1: bob is better at making patties. Max is better at making buns: trade is beneficial. Case 2: what if bob is better at making both buns and patties: even in this case trade is beneficial to both parties. Trade is always beneficial if all parties specialize on the good they at better at. Us: 50,000 hours of labor, technology: 1 w = 10 hrs: workers in c (25,000 hrs, workers in w (25,000 hrs) Without trade: ppf is also consumption possibility frontier. What you produce = what you eat. 1 w = 25 hrs: workers in c (15,000 hrs, workers in w (15,000 hrs) Us will produce 3400 tons of wheat, 160 computers. After the trade: us: 270 c, 2700 w, japan: 130 c, 700 w. After trade outside ppf consume > produce.
