ECON 160 Lecture Notes - Lecture 6: Comparative Advantage, Opportunity Cost
9 Sep 2016
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Satiation the more you consume, the less pleasure you gain from it. In economics, no one achieves full satiation, because people are greedy. Auturky is the state of complete economic self-sufficiency: you cannot look at a country in isolation to figure out what they should trade; you have to compare countries, this is where comparative advantage is factored in. In the above case, england has an absolute disadvantage in making cloth and wine, because it requires more inputs to create the same output. However, the comparative advantage is a different story. In this example, portugal has to give up more than one unit of wine to make 1 unit of cloth; however, England only has to give up 5/6 of a unit of wine to make 1 unit of cloth. The opportunity cost of cloth is less in england than in portugal. The good for which the opportunity cost is lower is where the country has a comparative advantage.
