EC120 Study Guide - Absolute Advantage, Opportunity Cost, Comparative Advantage
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EC120 Full Course Notes
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Absolute advantage the comparison among producers of a good according to their productivity. Opportunity cost whatever must be given up to obtain some item. Comparative advantage the comparison among producers of a good according to their opportunity cost. Imports goods and services produced abroad and sold domestically (goods/services brought into the country) Exports goods and services produced domestically and sold abroad (goods/sevices that leave the country) Interdependence is possible because people trade with one another. If the farmer divides his time equally he can make 16kg of potatoes and 4kg of meat. If the farmer spends 1 hour less of his output producing meat he loses 1kg of meat and gains 4kg of potatoes. The proposed trade-off between the farmer and rancher goes as follows. Farmer works 8 hours producing only potatoes, 32kg. Farmer gives 15kg of those potatoes and keeps 17kg of potatoes. Rancher produces 18kg of meat and 12kg of potatoes.
