ECON 102 Lecture Notes - Lecture 9: Opportunity Cost, Absolute Advantage, Comparative Advantage

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27 Mar 2018
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The only two countries in the world, alpha and omega, face the following production possibilities frontiers. Alpha"s world production would be (250/2)=125 peanuts and (150/2)=75 popcorn at the same time, it"s cut in half because the midpoint (125,75) shows when they have to produce both labors due to no trading. Omega"s world production would be (100/2)=50 peanuts and (300/2)=150 popcorn at the same time: now suppose that each country decides to specialize in the good in which each has a comparative advantage. Alpha is comparative in peanuts and omega is comparative in popcorn. Alpha= 1 peanut to popcorn so (1)(100) to ( )(100)= 100 to 60, so 100 (from trade) - 60 (if there was no trade)= 40 popcorn gain from trade. Jacque can fix the same kind of meal in 2 hours, and his opportunity cost of one hour is . Explain: tom"s opportunity cost of mowing a lawn is 2 loads of laundry.

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