ECO 304K Chapter Notes -Feeling, Rational Ignorance, Business Cycle
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ECO 304K Full Course Notes
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+ study exam 1 and 2 study guides. Chapter 2: the power of trade and comparative advantage. A production possibilities frontier shows all the combinations of goods that a country can producer given its productivity and supply of inputs. A country has a comparative advantage in producing goods which it has the lowest opportunity cost. When each country produes according to its comparative advantage and then trades, total production and consumption increase. Importantly, us and mexico gain from trade even though the us is more productive than mexico at producing both computers and shirts. *a country (or a person) will always be the low-cost seller of some good. The greater the advantage a country has in producing a, the greater the cost to it of producing b. The more productive ethe us is a tprorudcing computers, the greater its demand will be to trade for shirts.
