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Please answer the following question in your Current Events Notebook.

Please answer the following question in your Current Events Notebook. Why do we buy things from other countries that you know we can produce just as inexpensively or even better ourselves?. Imagine a farmer who has to decide what to grow (and how much of it) on his 40 acre farm.

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Please answer the following question in your Current Events Notebook.

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  1. Please answer the following question in your Current Events Notebook. Why do we buy things from other countries that you know we can produce just as inexpensively or even better ourselves?

  2. Imagine a farmer • who has to decide • what to grow • (and how much of it) • on his 40 acre farm. • 10 acres are fertile and moist • 10 acres have rocks • 10 acres have rocks and trees • 10 acres have rocks, trees, and hills

  3. Can we see these basic • economic principles at work? • scarcity • opportunity cost • trade-offs • marginal cost of production • marginal benefit of production

  4. Essential Question:How do we decide how much of a product is “best” for us to produce?

  5. Quantity of Good A see Krugman page 23 Figure 2-1 • The Production Possibility Frontier (PPF) Text ccccccccc c Quantity of Good B Fair Warning: you WILL be asked to reproduce this graph

  6. MOCP = slope • Principles #1 and #2 : scarcity of resources force individual choices that result in trade-offs that can be measured as the opportunity cost of production. see Krugman page 24 Figure 2-2

  7. The CONCAVE shape of the typical PPF is a result of the fact that some resources are better suited to producing certain goods than others. • The more you try to produce of any one good, the more you have to employ resources that are less well-suited. • Remember the wheat farmer... • That implies that your • marginal costs of production • are always rising. this is WHEAT

  8. The CONCAVE shape of the typical PPF is a result of the fact that some resources are better suited to producing certain goods than others. • The more you try to produce of any one good, the more you have to employ resources that are less well-suited. • Remember the wheat farmer... • That implies that your • marginal costs of production • are always rising.

  9. Thank you for being a great class.

  10. see Krugman page 25 Figure 2-3 • Economic growth shifts the entire PPF upwards and outwards. Some reasons might be ...

  11. see Krugman page 26 Figure 2-4 • Principle #5 of 9 : there are gains from trade • ... but how ... ? Please note that the straight-line version of the PPF is a special case when resources are equally well-suited to producing either Good A or Good B. (What does that tell us about the MOCP?)

  12. Notice that the numbers above represent the SLOPE of the PPF and are reciprocals of each other because you are looking at a straight line from either end... • Opportunity Costs of Production

  13. BOTH parties can be made better off when they specialize in producing the good for which they have a comparative advantage and then trade with each other for what they need or want. To the Internets! 1 2

  14. Comparative advantage can best be understood by thinking about “what does each producer give up in order to make a certain amount of Good A or Good B ” ? • One has a comparative advantage in producing a good or service if the opportunity cost of producing the good is lower for that individual than for another. • Same is true for companies or countries!

  15. Do not confuse comparative advantage with • absolute advantage. • ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ • Absolute advantage means you can produce more output with a given amount of input than other people. • ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ • Gains from trade are determined by • comparative advantage NOT absolute advantage. • ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ • So even though you might be better at producing BOTH products, you will still gain from specializing and trading based on your comparative advantages.

  16. This would be a great time to practice in pairs or small groups...

  17. The Hatfields ...he’s our brother... ...he’s our daddy... He’s our daddy AND our brother!

  18. ...and The McCoys ...no comment!

  19. ...their cousin/brother is a baaaaad boy!

  20. Will you students please focus on Economics !

  21. Now re-answer the following question in your Current Events Notebook using terms and economic concepts you learned today... Why do we buy things from other countries that you know we can produce just as inexpensively or better ourselves?

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