11:373:101 Lecture Notes - Lecture 5: Absolute Advantage, Dont, Opportunity Cost

• School: Rutgers University
• Department: Environmental and Business Economics
• Course: 11:373:101
• Professor: P.Gottlieb

Document Summary

Specialization and gains from exchanges: people, places, firms can all specialize, specialization is ubiquitous; specialization implies exchange (trade, specialization and exchange can increase economic well-being. People have different preferences about what they want to do. Reasons for specialization: resource suitability, efficiency in human performance, efficiency in large scale production ( economies of scale ) Ans: not if the student is per hour and spends 48 hours completing one job: alternatives: Specialization: student should specialize in report writing, because the student"s opportunity cost of writing is lower than the lawyers. Absolute advantage: ability to produce fewer resources (lawyer had absolute advantage in research and writing) Law firm without specialization: 5 reports per week were produced using 48 labor hours from each worker = 4 original reports plus one extra from student. Law firm with specialization by comparative advantage: 6 reports per week were produced using.