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Lecture 19 Production Possibility Frontier

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The PPF is a basic workhorse in economics. Often introduced in the first ... Very influential in pioneering the theory of comparative advantage, inter alia. ... – PowerPoint PPT presentation

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Title: Lecture 19 Production Possibility Frontier


1
Lecture 19 - Production Possibility Frontier
  • Wissinks Words

2
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.

3
  • 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.

4
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

5
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.

6
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.
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