- Specialization
- Individuals & countries can be made better off if they will produce in what they have comparative advantage & then trade with others for whatever else they want or need.
- Absolute & Comparative Advantage
- Absolute Advantage-
- The producer that can produce the most output or requires the least amount of input (resources.)
- Comparative Advantage-
- The producer with the lowest opportunity cost
- Countries should trade if they have relatively lower opportunity costs.
- They should specialize in the good that is "cheaper" for them to produce.
- Distinguish Input from Output Problems
- Output Problem- Presents the data as products produced given a set of resources.
- Ex) Number of pens produced
- Input Problem- Presents the data as amount of resources needed to produce a fixed amount of output.
- Ex) Number of labor hours to produce 1 bushel.
- When identifying absolute advantage, input problems change the scenario from who can produce the most to who can produce a given product with the least amount of resources.
No comments:
Post a Comment