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367 lecture 2
This document discusses concepts in health economics including opportunity costs, production possibilities curves, comparative advantage, and gains from trade. It provides examples showing how specializing production based on comparative advantage and trading can allow both Saudi Arabia and Idaho to gain by producing more of what they have a lower opportunity cost in. Specifically, through trade Saudi could gain 12 more potatoes and Idaho could gain 9 more dates compared to no trade. Overall, the document argues that trade based on comparative advantage provides benefits to all parties.
367 lecture 2
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- 3. Opportunity Costs Production PossibilitiesCurve Comparative Advantage Comparative Advantage Comparative Advantage
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- 8. Fell Pushed Jumped Result the same Result the same
- 9. Why are you here?
- 10. Opportunity Cost Cost Highest Valued
- 11. Possibilities Curve Curve Curve
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- 13. iPods to iPads3 to 1 iPads to iPods 1 to 3
- 15. iPods: 900,000 iPads: 0 iPods: 600,000 iPads: 100,000 iPods: 300,000 iPads: 200,000 iPods: 0 iPads: 300,000
- 17. Bows Out Dueto Opportunity Costs
- 19. Innovation that only helpsiPad production
- 20. Innovation that helps both.
- 21. Absolute Advantage Produce more with the same resources Comparative Advantage Produce at a lower opportunity cost
- 22. David Ricardo (1772 - 1823) Principles of Political Economy and Taxation Comparative Advantage
- 24. Utopia vs. Reality Realityalways loses Realistic Alternatives
- 25. Positive What is Fact Normative What ought to be Values
- 26. Facts True or False Values Good or Bad
- 27. The basis fortrade is comparative advantage, not absolute advantage.
- 29. No Trade 2 Hooks and 2 Fish 10 Hours - 5 Hours per Fish Total Gale Ali Hours Make a 3 2 5 Hook Catch 4 1 5 a Fish Total 7 3 10 Hours
- 30. With Trade 2 Hooks and 2 Fish 8 Hours - 4 Hours Per Fish Total Gale Ali Hours Make a 2 hooks 6 Hook 6 hours Catch 2 fish 2 a Fish 2 hours Total 6 2 8 Hours
- 31. Saudi Idaho
- 32. Saudi Arabia Idaho Dates Potatoes Dates Potatoes 24 0 6 0 20 1 5 5 16 2 4 10 12 3 3 15 8 4 2 20 4 5 1 25 0 6 0 30 Ratios Ratios 24 to 6 6 to 30 4 Dates for 1 Potato 1/5 Dates for 1 Potato 6 to 24 30 to 6 1/4 Potato for 1 Date 5 Potatoes for 1 Date
- 33. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 16 2 21 12 3 8 4 18 4 5 0 6 15 Saudi PPF Dates Potatoes 12 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
- 34. Internal Dates Potatoes Price Idaho 5 Potatoes 1/5 Date Saudi 1/4 Potato 4 Dates
- 35. No Trade Dates Potatoes Idaho 3 15 Saudi 12 3 Total 15 18
- 36. Specialize Dates Potatoes Idaho 0 30 Saudi 24 0 Total 24 30
- 37. Analysis Dates Potatoes No Trade 15 18 Totals Specialize 24 30 Totals Gain +9 +12
- 38. Trade Dates Potatoes Idaho 3 to 12 = +9 15 California 12 3 to 15 = +12 Total 24 30
- 39. Dates Should Idaho and Saudi Trade? 27 Idaho 24 gains 9 Dates 21 18 15 Saudi Trade PPF PPF Saudi 12 gains 12 potatoes 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
- 40. Markets Where Buyers and Sellers Trade Where Buyers and Sellers Trade Where Buyers and Sellers Trade