[ECO100Y1] - Final Exam Guide - Everything you need to know! (98 pages long)
Document Summary
Week #2 comparative advantage and the gain from trade. Insight for last week (opportunity cost: predictions of economic analysis(rational decision-making) are usually accurate, study of non-rational decision-making is a subfield: behavioural economics. Production possibilities frontier (ppf) = consumption opportunities: scarcity (attainable vs. not attainable, tradeoffs (choices - decisions, opportunity cost. Chocolate: switch from all gumdrops to all chocolates. Opportunity cost = 10/5= 2 gumdrops of one chocolate: switch from all chocolates to all gumdrops. Opportunity cost = 5/10 = 0. 5 chocolate of one gumdrop. *for a linear ppf, opportunity costs do not change as we move along the ppf. An [or country] has a comparative advantage in an activity if the individual [or country] can perform the activity at a lower opportunity than anyone else. *comparative advantage is the key to the gains from trade, both b/w countries and b/w individuals. John has absolute advantage in production of cloth (more efficient producing cloth)
