Bài giảng Macroeconomics - Chapter 2: Comparative Advantage

Chapter 2: Comparative AdvantageExplain and apply the Principle of Comparative AdvantageExplain and apply the Principle of Increasing Opportunity CostIdentify the factors that shift the menu of production possibilitiesExplain and apply the role of comparative advantage in international tradeDescribe why some jobs are more vulnerable to outsourcing than othersExchange and Opportunity CostA person has an absolute advantage at a particular task if he or she can perform the task in fewer hours than the other personA person has a comparative advantage at a particular task if his or her opportunity cost of performing the task is lower than the other person’s opportunity costTwo parties have different opportunity costs for two activitiesConcentrate on the activities for which you have the lowest opportunity costTotal value of output increases with specialization and tradeThe Principle of Comparative AdvantageEveryone does best when each person (or each country) concentrates on the activities for which his or her opportunity cost is the lowest.The Principle of Comparative AdvantageComparative Advantage ExampleProduction TimesWeb UpdateBike RepairBeth20 minutes10 minutesPaula30 minutes30 minutesPaula and Beth can each update web pages and repair bikesBeth has an absolute advantage in bothComparative advantage drives specializationOpportunity CostWeb UpdateBike RepairBeth2 repairs0.5 updatePaula1 repair1 updateComparative Advantage Example16 web updates are orderedBeth spends half her time at each activity: 12 updates and 24 repairsPaula produces 4 updates and 12 repairsTotal output 16 updates and 36 repairsSpecialization produces 16 updates and 48 repairs12 more repairs for the same inputs!Hourly OutputWeb UpdateBike RepairBeth3 updates6 repairsPaula2 updates2 repairsHourly OutputWeb UpdateBike RepairBeth3 updates6 repairsPaula2 updates2 repairsProduction Possibilities CurveA production possibilities curve illustrates the combinations of two goods that can be produced with given resourcesDefinitions:Unattainable pointAttainable pointInefficient pointEfficient pointScarcity PrincipleGive up one good to get anotherNuts (lb/day)ABUnattainableCombinationCInefficient CombinationDCoffee (lb/day)241684812Susan's Production PossibilitiesTwo goods: coffee and nutsWork 6 hours per day1 hour of labor= 4 pounds of coffee OR= 2 pounds of nutsGraph shows optionsNegative slopeCoffee (lb/day)Nuts (lb/day)1684824ABCD12Susan's Opportunity CostMarginal cost: – 8 coffee Marginal benefit: 4 nutsLoss in coffeeGain in nutsOpportunity cost of 1 nut is 2 coffeeMarginal cost: – 8 nutMarginal benefit: 16 coffeeLoss in nutsGain in coffeeOpportunity cost of 1 coffee is ½ nutCoffee (lb/day)Nuts (lb/day)1684824ABCD12Tom's Production PossibilitiesWork 6 hours per dayProductivity determines the slope of the PPC1 hour of labor= 4 pounds of nuts OR= 2 pounds of coffeeOpportunity costMarginal cost: – 4 coffee Marginal benefit: 8 nutsTom's opportunity cost of 1 coffee is 2 nutsHis opportunity cost of 1 nut is ½ coffeeNuts (lb/day)Coffee (lb/day)48816ABCD1224Tom, Meet SusanPPCs show comparative advantageSue's curve is steeper, better for coffeeTom's curve is flatter, better for nutsComparative advantage is a comparisonTo get 1 coffeeSue gives up ½ nutsTom gives up 2 nutsNuts (lb/day)1224Tom’s PPC2412Susan’s PPCCoffee (lb/day)Gains from Specialization and TradePreferred diet is half nuts, half coffeeNo trade: 8 pounds of coffee and 8 pounds of nutsTotal output is 32 poundsSpecialization gives each person 12 pounds of each good48 total poundsSusan and Tom exchange12 nuts, 12 coffee88Nuts (lb/day)12242412Coffee (lb/day)Gains from Specialization and TradeBenefits increase when differences in opportunity cost increaseSue's opportunity cost of one pound of nuts increases to 6 coffeeTom's opportunity cost of one pound of coffee increases to 6 nutsNo trade: 3.4 nuts and 3.4 coffee eachWith trade: 12 nuts and 12 coffee eachTrade benefitsNo trade24244412Sue's PPC12Coffee (lb/day)Nuts (lb/day)Tom's PPCWith tradeProduction Possibilities for an EconomyTwo goods: coffee and nutsMultiple peopleDifferent opportunity costsIntercepts show maximum production of one goodSome resources better at coffee, some better at nutsNuts (1000s of lb/day)10080Coffee (1000s of lb/day)EABCD1520909520307577The Principle of Increasing Opportunity CostMaximum coffee: 100,000 lb / dayGive up 5,000 pounds coffee, get 20,000 pounds of nutsGive up another 5,000 pounds of coffee, get 10,000 additional pounds of nutsNuts (1000s of lb/day)10080Coffee (1000s of lb/day)EABCD1520909520307577The Principle of Increasing Opportunity CostStart with resources with lowest opportunity costThen move to next highest opportunity costAnd still higher opportunity costDecreasing productivityResources UsedShifts in PPCNutsCoffeeNeutral Technical ChangeNutsCoffeeTechnical Change in NutsTechnical Change in CoffeeNutsCoffeeComparative AdvantageComparative AdvantageSpecialization and Gains from TradeIncreasing Opportunity CostShift PPCProduction Possibilities CurveIndividualEconomyOutsourcing