(millions
6 per page - Université d'Ottawa
6 per page - Université d'Ottawa
- No tags were found...
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
Cloth (<strong>millions</strong> of meters per bottle)<br />
5<br />
4<br />
3<br />
2<br />
1<br />
a<br />
Marginal Benefit<br />
b<br />
c<br />
Decreasing<br />
marginal benefit<br />
from wine<br />
0 1 2 3 4 5<br />
*<br />
wine (<strong>millions</strong> of bottles)<br />
Université d’Ottawa / University of Ottawa<br />
Université d’Ottawa / University of Ottawa<br />
d<br />
e<br />
MB<br />
*<br />
Efficient use of resources<br />
Resource use is efficient when we produce the<br />
goods and services that we value most highly.<br />
• When resources are used efficiently<br />
‣ if we produce any more of one good, we give up<br />
something that we value even more highly<br />
‣ To find optimality decision, we compare the<br />
marginal cost to the marginal benefit.<br />
Université d’Ottawa / University of Ottawa<br />
Université d’Ottawa / University of Ottawa<br />
Efficient Use of Resources<br />
• If the marginal benefit of the last unit of a good<br />
exceeds its marginal cost, we increase production<br />
of that good.<br />
‣ MB > MC; increase<br />
• If the marginal cost of the last unit of a good<br />
exceeds its marginal benefit, we decrease<br />
production of that good.<br />
‣ MB < MC; decrease<br />
*<br />
Marginal cost and willingness to pay<br />
(meters of cloth per bottle)<br />
5<br />
4<br />
3<br />
2<br />
1<br />
Efficient Use of Resources<br />
Benefit<br />
exceeds<br />
cost<br />
Bottles of pop<br />
that people are<br />
willing to forgo<br />
Bottles of pop<br />
that people<br />
must forgo<br />
Cost<br />
exceeds<br />
benefit<br />
0 1.5 2.5 3.5 5<br />
*<br />
MB<br />
MC<br />
wine (<strong>millions</strong>)<br />
Université d’Ottawa / University of Ottawa<br />
Université d’Ottawa / University of Ottawa<br />
Université d’Ottawa / University of Ottawa<br />
Université d’Ottawa / University of Ottawa<br />
Specialization and trade expand<br />
production possibilities<br />
There are gains from trade<br />
Comparative advantage is the ability to perform<br />
an activity at a lower opportunity cost than<br />
anyone else.<br />
Comparative Advantage<br />
• Differences in comparative advantage give<br />
rise to gains in trade.<br />
• Suppose that CDs have two components: a<br />
disc and a plastic case.<br />
• Tom and Trish both own factories.<br />
‣ They can each produce both discs and cases, or<br />
they can specialize.<br />
‣ What should they do?<br />
*<br />
Université d’Ottawa / University of Ottawa<br />
Université d’Ottawa / University of Ottawa<br />
*<br />
Université d’Ottawa / University of Ottawa<br />
Université d’Ottawa / University of Ottawa
Change language