Textbook Notes (363,141)
Canada (158,218)
Economics (359)
ECON 102 (143)
Chapter 2

Ch. 2

3 Pages
Unlock Document

University of British Columbia
ECON 102
Soren Lemche

2.1 Exchange + Opportunity Cost Generalized system-people do all their own tasks (can do everything, so self- sufficient) Specialized system-people do what they’re best at, trade others to satisfy desires -> more productive Absolute advantage-if person takes less time/resources for a task than another person Comparative advantage-in doing task, one has lower OC than other person -if person A is better at fixing bikes than TVs, and person B is same as A at fixing TVs, person A should NOT fix their own TV (b/c could spend that time fixing bikes, which A is better at) Example: Rick takes 20 minutes to fix TV and 10 mins to fix a bike; Beth takes 30 minutes to fix either OC of fixing TV: Rick = fixing 2 bikes (what he gives up in that time) Beth = fixing 1 bike OC of fixing bike: Rick = fixing ½ TV Beth = fixing 1 TV -Rick has absolute advantage in both areas, but comparative advantage only in fixing a bike -Beth has comparative advantage in fixing a TV Generalized system: World wants 16 TVs fixed -> Rick spends half of 8 hour day on TVs => 12 TVs + 24 bikes from Rick; Beth spends 2 hours for remaining 4 TVs, 6 hours left to get 12 bikes = 16 TVs, 36 bikes Specialized System: Rick only fixes bikes, Beth only fixes TVs => world gets 16 TVs, 48 bikes Productivity-units of output per hour divided by units of input per hour -can describe information in terms of productivity Example: Kim can fix 2 TVs/hour and fix 1 bike/hour; Bob can fix 3 TVs/hour and fix 3 bikes/hour -Bob has greater productivity in both, so has absolute advantage in both -Bob has comparative advantage in fixing bikes (gives up 1 TV vs. Kim’s 2 TVs) Principle of Comparative Advantage-total output largest when each person/country concentrates on the activities where their opportunity cost is lowest (even if one has absolute advantage in all activities) Sources of Comparative Advantage Individual level: inborn talent, education, training, experience National level: natural resources, society, culture, politics, economy, legal institutions, accumulated human + physical (eg. technology) capital -also, since English is widespread language, English-speaking countries have CA in (eg. making movies) 2.2 Comparative Advantage + Production Possibilities Production Possibilities Curve-graph, shows max amnt of one good that can be made for every level of other good (using rule: more of one means less of other) Example: Susan can pick nuts or berries -> can pick 1.5 kg nuts/hour, 3 kg berries/hour, with an 8 hour day Attainable Point-any combo of goods that can be produced using available resources (vs. unattainable) Efficient Point-any combo of goods where increase in one must result in decrease of other (lies on curve) Inefficient Pt-any combo of goods where increase in one doesn’t mean decrease in other (within curve) PPC for 2-person economy Susan: 1
More Less

Related notes for ECON 102

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.