ECO 211 Chapter Notes - Chapter 2: Opportunity Cost, Comparative Advantage, Absolute Advantage
24 Jun 2016
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ECO 211 Full Course Notes
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Chapter 2 notes (page 37 end of chapter 2) Production & consumption (with & without trade) Production & consumption: without trade, production = consumption. 39: the person who can produce more than its competition, the person with absolute advantage doesn"t have any incentives to trade with the other person, trade doesn"t take place based on absolute advantage. Opportunity cost (w/o trade: what you have to give up in order to obtain something else, ex: debra: 60 pizzas or 120 wings. Making 1 pizza giving up 2 wings (her opportunity cost = 2 wings: ex: mike: 24 pizzas or 72 wings. Debra: producing & consuming 40 wings & pizzas. Mike: producing & consuming 18 wings & pizzas: with trade: Debra: producing 60 pizzas, consuming 41 pizzas, gain from trade = +1 & +7 (trade those 19 extra pizzas with mike) Mike: producing 72 wings, consuming 25, gain from trade = +1. & +7 (trade those extra 47 with debra)
