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ECN 104 (388)
Chapter 3

Economics Chapter 3.docx

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Department
Economics
Course
ECN 104
Professor
Tsogbadral Galaabaatar
Semester
Winter

Description
Economics Chapter 3 Interdependence: Every day you rely on many people from around the world, most of whom you’ve never met, to provide you with the goods and services you enjoy. Absolute Advantage: The comparison among producers of a good according to their productivity or the ability to produce a good using fewer inputs than another producer Opportunity Cost: whatever must be given up to obtain some item Comparative advantage: Comparison among producers of a good according to their opportunity cost or the ability to produce a good at a lower opportunity cost than another producer Imports: Goods and services produced abroad and sold domestically Exports: Goods and services produces domestically and sold abroad  Two countries: Canada and Japan  Two goods: computers and wheat  One resource: labour, measured in hours  We will look at how much of both goods each country produces and consumes o if the country chooses to be self-sufficient o if it trades with the other country PPF in Canada  Canada has 50,000 hours of labour available for production, per month.  Producing one computer requires 100 hours of labour.  Producing one ton of wheat requires 10 hours of labour.  Suppose Canada uses half its labour to produce each of the two goods.  Then it will produce and consume 250 computers and 2500 tons of wheat  Japan has 30,000 hours of labour available for production, per month.  Producing one computer requires 125 hours of labour.  Producing one ton of wheat requires 25 hours of labour.  Your graph should measure computers on the horizontal axis.  Suppose Japan uses half its labour to produce each good.  Then it will produce and consume  120 computers and 600 tons of wheat. Without trade,  Canadian consumers get 250 computers and 2500 tons wheat.  Japanese consumers get 120 computers and 600 tons wheat.  We will compare consumption without trade to consumption with trade.  First, we need to see how much of each good is produced and traded by the two countries. 1. Suppose Canada produces 3400 tons of wheat. How many computers would Canada be able to produce with its remaining labour? Draw the point representing this combination of computers and wheat on Canada PPF. 2. Suppose Japan produces 240 computers. How many tons of wheat would Japan be able to produce with its remaining labour? Draw this point on Japan’s PPF.  Producing 3400 tons of wheat requires 34,000 labour hours.  The remaining 16,000 labour hours are
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