ECO 201 Lecture Notes - Lecture 3: Comparative Advantage, Opportunity Cost, Pus
Document Summary
Model of bilateral trade- trade between 2 paries. 2 individuals each own a limited amount of some factor of producion can use fop to produce 1 of 2 goods (x & y), or some combo of both. An individual can have aa over the other in the producion of both goods. An individual can only have ca over the other in the producion of one of the goods. Ex: bob (b) has 10 acres of land. If he pus all his land towards the producion of grapefruits (g) he can produce 500 g or . He could use all his land to produce 1000 apples (a) Jane has 5 acres of land and uses all her land to produce 400. Specializing in a good- the individual produces that good only: gains from trade exist- if both individuals can be made beter of by specializing in one of the goods and trading with each other for the other.
