ECON 105 Lecture Notes - Lecture 3: Peanut Butter, Autarky, Absolute Advantage

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

Document Summary

Chapter 3: interdependence and the gains from trade. Specialization = we all do difference things, things that we are really good at. Comparative advantage - principle is true but not oubvious. Al can produce 10 spoonfuls of peanut butter (pb) or 10 slices of bread (b) per hour. His ppf looks like this: *****see notebook for graph***** ( 1 ) Efficient doesn"t necessarily mean the best outcome ( or even good outcome ), but an outcome from which you can"t possibly improve on. Imagine al lives in autarky ( the state of not trading with the rest of the world ) Autarky = you produce exactly what you consume. In autarky you must choose a consumption bundle on or inside of your ppf. If al likes peanut butter sandwiches much more than b or pb alone, then he will choose: Now suppose betty can make 20 spoonfuls of peanut butter or 40 slices of bread in an hour.