ECON 105 Lecture Notes - Lecture 3: Autarky, Absolute Advantage, Opportunity Cost

• School: Simon Fraser University
• Department: Economics
• Course: ECON 105
• Professor: Brian Krauth

Document Summary

Imagine you live on a big island all by yourself. You would be in state economists call autarky. The world you actually live in is characterized by specialization and trade. Can produce 10 fcv/ hr: maximum of 40 cars / 400 fcvs, opportunity cost of fcv is 1/10. Can produce 40 fcv/hr: maximum of 80 cars / 1600 fcv, slope/ opportunity cost of fcv = (0 80)/(1600 0) = -1/20. Note that betty has an absolute advantage in both goods. Can make max of 120 cars or max of 2000 fcvs per 40hr work week. When each spend half of time (20 hrs) doing each task: 60 cars / 1000 fcvs. If al was to work only on fcvs and betty only on cars: specialize for cars, 80 cars / 400 fcvs. If al was to work only on cars and betty only on fcvs.