ECON 200 Chapter Notes - Chapter 3: Absolute Advantage, Comparative Advantage, Opportunity Cost

• School: UW
• Department: Economics
• Course: ECON 200
• Professor: Theresa Henry

Document Summary

Ex: two goods in the world - meat & potatoes. Two people in the world - cattle rancher rose & potato farmer frank. Trading would allow them to enjoy a greater variety. Ex: suppose frank & rose work 8 hours a day, devote time to growing potatoes, raising cattle, or combo of the two. Frank - produce one ounce of potatoes in 15 min & one ounce of meat in 60 min. Rose - produce one ounce of potatoes in 10 min & one ounce of meat in 20 min. Ex: frank faces trade-off between producing meat & producing potatoes. Both decide to trade-off and spend more hours on what they specialized on. 3-2 comparative advantage: the driving force of specializaiton. Rose seems to be good at everything & frank is absolute shit. To find cost of producing potatoes is to compare inputs required by two producers. Absolute advantage: ability to produce a good using fewer inputs than another producer.