ECON 160 Lecture Notes - Lecture 5: Stick Figure, Absolute Advantage, Autarky
7 Sep 2016
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Document Summary
Countries have an absolute advantage or comparative advantage in goods. Goods do not have an absolute or comparative advantage. The way in which inputs combine to produce outputs. This is a two country, two good, one input economy. This is as simple of a model of an economy as a stick figure is a model of a person. Assumed exogenous - to be born from without the model: contrast with endogenous to be born from within the model. Constant productivity: ratio of inputs to outputs is constant. Two factors technology and endowment: technology is the way to take inputs and make outputs, technology is exogenous. The maximum cloth that can be made for portugal is the labor endowment(14400)/labor needed for one unit(90) = 160 units of cloth. Similarly, portugal can make 180 units of wine, and england can make 120 units of cloth and 100 units of wine.
