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1000
1500
2010
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2-5
Comparative Advantage
most productive use of a resource Hitting was the Babes comparative advantage
Very good pitcherplayed every 4-5 days Great hitterplayed every day and changed
2-6
Belgium
4
2-7
5 4 D 3 2 1 A
Pakistan
C
Belgium
B
E
2-8
5 4 D 3 2 1 A
For Belgium the opportunity cost of one ton of chocolate is 250 yards of textiles.
Pakistan
C B
Belgium has the comparative advantage in chocolate and specializes producing 4 tons (point E). Pakistan has the comparative advantage in textiles and specializes producing 4000 yards (point D).
Belgium
E
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Pakistan
Note how much more they can have if they specialize and trade
C (2,2)
Belgium
G (5,0) 1 2 3 4 Chocolate (in tons) 5
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2-10
McGraw-Hill/Irwin
2-11
The U.S. is more efficient in producing both computer chips and video games. Can the U.S. benefit by trading with Japan?
McGraw-Hill/Irwin
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
2-12
In the U.S. the opportunity cost of 1 video game is 80/80 = 1 computer chip.
In Japan the opportunity cost of 1 computer chip is 80/40 = 2 video games. U.S. should specialize in computer chips. Produces 100 per hour Japan should specialize in video games. Produces 80 per hour They agree to trade 1 computer chip for 1.5 video games U.S. gets video games for 2/3 of a computer chip Japan gets computer chips for 1.5 video games Both countries have reduced their opportunity costs
McGraw-Hill/Irwin
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
2-13
What is the comparative advantage of countries such as India and China? What is the comparative advantage of the U.S.?
McGraw-Hill/Irwin
2-14
Globalization
2-15