Textbook Notes (368,588)
Canada (161,988)
Economics (747)
ECON 1BB3 (338)
Chapter 3

Chapter 3 - Independence and the gains from trade

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Bridget O' Shaughnessy

thEconomics Textbook Notes February 5 2012Chapter 3Independence and the gains from trade Production possibilitiesWhen the PPF is bowed out the tradeoff between two goods depends on the amounts being producedHowever if technology for producing 2 goods allows you to switch between one good and the other at a constant rate the PPF is a straight line If people are selfsufficient and dont trade the PPF is also the consumption possibilities frontierComparative advantage the driving force of specialization Absolute advantage the comparison among producers of a good according to their productivity The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that goodOpportunity cost and comparative advantage Opportunity cost whatever must be given up to obtain some item When finding opportunity cost divide by what you want the opportunity cost of Comparative advantage the comparison among producers of a good according to their opportunity cost Although it is possible for one person to have an absolute advantage I both goods it is impossible for one person to have a comparative advantage in both goodsBecause the opportunity cost of one good is the inverse oppor
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