1. ECON201, Maclachlan, Fall 20061 Comparative Advantage Chapter 2

2. ECON201, Maclachlan, Fall 20062 Economic Principle Trade between two parties makes both better off.

3. ECON201, Maclachlan, Fall 20063 What’s the alternative to trade? David Thoreau at Walden Pond.

4. ECON201, Maclachlan, Fall 20064 On a national level: autarky A policy of national self-sufficiency and nonreliance on imports or economic aid.

5. ECON201, Maclachlan, Fall 20065 Mercantilism A country should aim to run trade surpluses and increase its monetary assets.

6. ECON201, Maclachlan, Fall 20066 Adam Smith (1723-1790) Critic of mercantilism. Countries should specialize and trade. Specialize where there’s an ABSOLUTE ADVANTAGE

7. ECON201, Maclachlan, Fall 20067 ABSOLUTE ADVANTAGE A region has an absolute advantage if it takes fewer resources to produce a good there than elsewhere. Coffee in Columbia. Computer software in Silicon Valley.

8. ECON201, Maclachlan, Fall 20068 David Ricardo (1772-1823) Theory of comparative advantage. Even without an absolute advantage a region can trade to the benefit of all parties.

9. ECON201, Maclachlan, Fall 20069 Productivity Information Time to update webpage. Time to repair a bicycle. Paula20 minutes10 minutes Beth30 minutes

10. ECON201, Maclachlan, Fall 200610 Productivity and Opportunity Cost Time to update webpageTime to repair bike Paula20 minutes10 minutes Beth30 minutes Opportunity cost of webpage update Opportunity cost of bike repair Paula2 bike repairs? Beth??

11. ECON201, Maclachlan, Fall 200611 Productivity and Opportunity Cost Time to update webpageTime to repair bike Paula20 minutes10 minutes Beth30 minutes Opportunity cost of webpage update Opportunity cost of bike repair Paula2 bike repairs0.5 webpage updates Beth??

12. ECON201, Maclachlan, Fall 200612 Productivity and Opportunity Cost Time to update webpageTime to repair bike Paula20 minutes10 minutes Beth30 minutes Opportunity cost of webpage update Opportunity cost of bike repair Paula2 bike repairs0.5 webpage updates Beth1 bike repair1 webpage update

13. ECON201, Maclachlan, Fall 200613 The Production Possibilities Frontier

14. ECON201, Maclachlan, Fall 200614 A Shift in the Production Possibilities Frontier

15. ECON201, Maclachlan, Fall 200615 Why some countries have been slow to specialize In the lone houses and very small villages which are scattered about in so desert a country as the Highlands of Scotland, every farmer must be butcher, baker and brewer for his own family. --Adam Smith, 1776

16. ECON201, Maclachlan, Fall 200616 Too much of a good thing? http://www.youtube.com/watch?v=VTgeNw1 guBs&mode=related&searchhttp://www.youtube.com/watch?v=VTgeNw1 guBs&mode=related&search=