Opportunity Costs PPC Comparative Advantage

1. HEN 368
Health Economics

2. Yabut

3. Opportunity Costs
Production Possibilities Curve
Comparative Advantage
Comparative Advantage
Comparative Advantage

4. Intent
Result
Result
Result

8. Fell
Pushed
Jumped
Result the same
Result the same

9. Why are you
here?

10. Opportunity
Cost
Cost
Highest
Valued

11. Possibilities
Curve
Curve
Curve

12. Production Possibilities Frontier

13. iPods to iPads 3 to 1
iPads to iPods 1 to 3

15. iPods: 900,000 iPads: 0
iPods: 600,000 iPads: 100,000
iPods: 300,000 iPads: 200,000
iPods: 0 iPads: 300,000

17. Bows Out Due to
Opportunity Costs

19. Innovation that only
helps iPad production

20. Innovation that
helps both.

21. Absolute Advantage
Produce more with
the same resources
Comparative Advantage
Produce at a
lower opportunity cost

22. David Ricardo
(1772 - 1823)
Principles of
Political Economy
and Taxation
Comparative Advantage

24. Utopia vs. Reality
Reality always loses
Realistic Alternatives

25. Positive
What is
Fact
Normative
What ought to be
Values

26. Facts
True or False
Values
Good or Bad

27. The basis for trade is
comparative advantage,
not
absolute advantage.

29. No Trade
2 Hooks and 2 Fish
10 Hours - 5 Hours per Fish
Total
Gale Ali
Hours
Make a
3 2 5
Hook
Catch
4 1 5
a Fish
Total
7 3 10
Hours

30. With Trade
2 Hooks and 2 Fish
8 Hours - 4 Hours Per Fish
Total
Gale Ali
Hours
Make a 2 hooks
6
Hook 6 hours
Catch 2 fish
2
a Fish 2 hours
Total
6 2 8
Hours

31. Saudi Idaho

32. Saudi Arabia Idaho
Dates Potatoes Dates Potatoes
24 0 6 0
20 1 5 5
16 2 4 10
12 3 3 15
8 4 2 20
4 5 1 25
0 6 0 30
Ratios Ratios
24 to 6 6 to 30
4 Dates for 1 Potato 1/5 Dates for 1 Potato
6 to 24 30 to 6
1/4 Potato for 1 Date 5 Potatoes for 1 Date

33. Dates
Should Idaho and Saudi Trade?
27
Dates Potatoes
24 24 0
20 1
16 2
21
12 3
8 4
18
4 5
0 6
15 Saudi
PPF
Dates Potatoes
12
6 0
5 5
9
4 10
3 15
6
2 20
Idaho
PPF 1 25
3 0 30
0
0 3 6 9 12 15 18 21 24 27 30 Potatoes

34. Internal
Dates Potatoes
Price
Idaho 5 Potatoes 1/5 Date
Saudi 1/4 Potato 4 Dates

35. No Trade Dates Potatoes
Idaho 3 15
Saudi 12 3
Total 15 18

36. Specialize Dates Potatoes
Idaho 0 30
Saudi 24 0
Total 24 30

37. Analysis Dates Potatoes
No Trade
15 18
Totals
Specialize
24 30
Totals
Gain +9 +12

38. Trade Dates Potatoes
Idaho 3 to 12 = +9 15
California 12 3 to 15 = +12
Total 24 30

39. Dates
Should Idaho and Saudi Trade?
27
Idaho
24
gains
9 Dates
21
18
15 Saudi Trade
PPF PPF
Saudi
12 gains
12 potatoes
9
6
Idaho
PPF
3
0
0 3 6 9 12 15 18 21 24 27 30 Potatoes

40. Markets
Where Buyers and
Sellers Trade
Where Buyers and
Sellers Trade
Where Buyers and
Sellers Trade