ECO101H1 Lecture Notes - Absolute Advantage, Comparative Advantage, Opportunity Cost
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ECO101H1 Full Course Notes
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Jane has absolute advantage in production of both cloth and corn. Jane now has an absolute advantage in the production of both cloth and corn. Yet john has a comparative advantage in the production of cloth, while jane has a comparative advantage in the production of corn. Observation: jane is now twice as productive in production of cloth and corn as in example 1 (where she could produce 8 cloth or 4 corn), so her opportunity cost of production each has not changed. Before trade, john and jane divided their time equally between the production of cloth and corn. After trade, john specializes completely in the production of cloth, while jane now allocates. 75% of her time ot the production of corn. With unchanged resources (ppfs), total output is higher if trade allowed. there are. If jane allocates 100% of her time to corn, then (after tade)