ECON 101 Chapter Notes - Chapter 3: Absolute Advantage, Comparative Advantage, Opportunity Cost
Document Summary
A parable for the modern economy: production possibilities. Top ten principle -- trade-offs: specialization and trade. Frank & rose get more of each product with trade. Ttp -- trade leaves both parties better off. Comparative advantage: the driving force of specialization: absolute advantage. : ability to produce a good using fewer inputs than another producer. A. 2. economists use when comparing productivity of one person/firm/nation to another. Rose has absolute advantage in meat & potatoes (requires less time than frank) A. 3. a) therefore, lower costs (if measure cost in terms of quantity of inputs: opportunity cost & comparative advantage. Opportunity cost: what we give up to get the item. Rose has greater opportunity cost for potatoes (loses more meat when producing potatoes) Frank has greater opportunity cost for meat (loses. Comparative advantage: ability to produce a good at a lower opportunity cost than another producer. B. 2. a) used when describing opportunity costs faced by two producers.
