ECON 2023 Lecture Notes - Lecture 21: Absolute Advantage, Opportunity Cost, Comparative Advantage
8 Dec 2016
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Two isolated nations: suppose world consists of 2 countries (u. s. & mexico) Labor size of these 2 nations= equal. Each nation can produce both beef & vegetable (@ different ef ciency level: 3 realities relating production possibilities curve (ppc, constant costs. =assumption of constant costs (for simplify: different costs. U. s. & mexico= different resource mixes, technology. =different slopes of curves: u. s. absolute advantage in both. Same size of labor > output per worker= u. s. > mexico. [graph] u. s. @ point a mexico @ point z. U. s. = operate at some point on production possibilities curve: the slope of the curve: 1. = 1 ton of vegetables= sacri ced for each extra ton of beef. 1 ton of vegetable (v) for 1 ton of beef (b) Within borders, u. s. can exchange vegetable & beef. 2 ton of vegetables for 1 ton of beef. =each country chooses output mix on ppc. Comparative advantage= key whether nation gain/ loss from specialization & trade.
