Comparative Advantage

Absolute advantage – being able to do something using fewer resources than other producers require

Law of comparative advantage – the worker with the lower opportunity cost of producing a particular output should specialize in that output

Specialization – when individual workers focus on single tasks

Gains from specialization:

-More efficient and productive

-Absolute advantage focuses on who used the fewest resources, comparative advantage focuses on what else those resources could have produced

Exchange:

-Barter – system of exchange in which products are traded directly for other products

-Money – medium of exchange

Most people consume little of what they produce and produce little of what they consume! Division of labor – sorts the production process into tasks to be carried out by separate workers. Drawbacks of specialization (Figure 2.2)

Conclusion

An economic system is the set of mechanisms and institutions that resolves the what, how, and for whom questions.

The resources in an economy are not all perfectly adaptable. Law of increasing opportunity cost – each additional increment of one good requires the economy to give up larger increments of other good. The PPF has a bowed-out shape due to the law of increasing opportunity cost

Control questions:

1. What does mean economic system?

2. What kind of economic system do you know?

3. What do you know about traditional economic system?

4. What do you know about production possibilities frontier

5. Can you give more information about law of comparative advantage?

Literature:

1. English for economists and managers: textbook/ O. V. Ulyanov, S. V. Grishin; yurginskiy technological Institute. – Tomsk: Publishing house of Tomsk Polytechnic University-theta, 2011. – 111 p.

2. Besanko D.A, Brauetugam R.R, Gibbs M.J Microeconomics,2011, Chicago

3. Griffiths A, Wall S.Economics for business and management,2011, England

4. Varian H.R. Intermediate microeconomics,2010, University of California at Berkeley

5. Boyd, W. Harper. Marketing Management.- Boston, 2010