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Lecture 1

ECON 402 Lecture Notes - Lecture 1: Absolute Advantage, Opportunity Cost


Department
Economics
Course Code
ECON 402
Professor
William Crowley
Lecture
1

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a) The point E is unattainable,
because it is beyond the
production possibility frontier
and it cannot be
achieved with the countries
resources.
b) The points B,C,D are efficient,
because they are on the
frontier and all available
resources are being fully
utilized .
c) The point A is inefficient
because maximum output is
not being obtained from the
available resources.
a) U.S have a competitive advantage in
producing lumberjack shirts because
there opportunity cost is lower
(1shirt=1/3boots (U.S) and
1shirt=1boots (Canada)).
However, Canada has a competitive
advantage in producing lumberjack
boots because there opportunity
cost is lower(1 boots = 1 shirt
(Canada) and 1 boots =3 shirts(U.S))
d) The country’s future growth rate will be the highest at point E, because this point lays on the line,
which is the outward shift of the production possibility frontier
b) None of the countries has an absolute advantage in producing both goods, because U.S has an absolute
advantage in producing shirts(12 ,when Canada produces 6 ) and Canada has an absolute advantage in
producing boots(6 when U.S produces 4 )
c) Lets imagine that U.S will specialize in producing shirts and Canada will specialize in producing boots. In
this case, U.S will have 12 shirts and 0 boots while Canada will have six boots and zero shirts. If U.S and
Canada will trade 9 shirts for 5 boots then U.S will have 3 shirts and 5 boots, Canada will have 9 shirts and
1 boots. Both of the countries will be
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