o Comparative Advantage
§ Rochester Grads or Cornell Grads
§ Can produce either wine or cameras
§ Rochester: 10 bottles of wine max or 5 cameras for year max
§ Cornell: 5 bottles of wine max or 4 cameras for year max
· For Rochester: 1 camera costs 2 bottles of wine
· For Cornell: 1 camera equals 1.25 bottles of wine
o Absolute vs. Comparative
§ Computers vs. Grass cutting
§ Person A: 3 computers and 10 lawns of grass cutting
§ Person B : 1 computer and 5 lawns of grass cutting
§ Person A has absolute advantage in both, but comparative advantage in computers
§ Person B has comparative advantage in lawns of grass cutting
o No individual can have a comparative advantage at producing everything
§ Comparative advantage is relative
§ Just because they are a manufacturing powerhouse does not mean that you can have comparative advantage with multiple goods
§ Cornell v. Rochester
· Cornell has comparative advantage in making cameras
· Rochester has comparative advantage in making wine (but absolute advantage in making both)
§ Through trade, comparative advantage can get two individuals/countries the goods they desire
· By trading, the PPF graph shifts to allow countries to have a better advantage in achieving its production of goods
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