Lecture 19 Production Possibility Frontier

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Lecture 19 - Production Possibility Frontier

• Wissinks Words

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remarks

• This lecture will introduce the Production
  Possibilities Frontier
• better known as the PPF.
• The PPF is a basic workhorse in economics.
• Often introduced in the first couple of lectures
  in both micro and macro intro courses.

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• Important for understanding some basic issues in
  economics and... more importantly.in
  international trade theory.
• Helps distinguish between Comparative Advantage
  and Absolute Advantage.
• An important historical figure in all this is
  David Ricardo.

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david ricardo

• Famous 19th century British economist.
• Some consider him the grandfather of
  international trade theory.
• Very influential in pioneering the theory of
  comparative advantage, inter alia.
• Very interesting, very bright guy.
• Had a lot of say about the corn laws

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the idea of comparative advantage

• Specialization and free trade will benefit all
  trading parties, even when some are absolutely
  more efficient producers than others.
• Need to understand absolute vs. comparative
  advantage.

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absolute vs. comparative advantage

• Absolute advantage if your country uses fewer
  resources to produce a given unit of output than
  the other country.
• Comparative advantage if your country can
  produce the output at a lower cost in terms of
  other goods foregone than the other country.
• Every person (or economy) has a comparative
  advantage at some activity.