Class Lecture #22 - 10/24

1.) Comparative Advantage..... Who's more efficient at making each item?
      absolute advantage = how much an individual can produce without taking into account economic context.
      efficient - whomever sacrifices less when they produce something; fewer tradeoffs
       - Rochester grads.... 10 bottles of wine/yr and 5 cameras/yr
       - Cornell grads...... 3 bottles of wine/yr and 4 cameras/yr
   
                           Rochester                      Cornell
camera cost        5 cams cost 10 w           4 cams cost 3 wines
                           1 cam cost 2 w              C = 3/4 wine
                           C = 2 wines
wine cost           10 w cost 5 cam             3 wines cost 4 cam
                           C = 1/2 cam                 C = 4/3 cam

    - UR more efficient at making wine... have a comparative advantage in making wine over Cornell
    - Cornell more efficient at making cameras.... comparative advantage in making cameras over UR
    - UR has an absolute advantage in making both
    - NOBODY CAN HAVE A COMPARATIVE ADVANTAGE IN EVERYTHING!!!

2.) This is what happens when UR and CU grads TRADE:
                    UR                       CU
Initial        10 wine                 0 wine
                  0 cams                  4 cams
   Then UR give CU 3 wines and CU give UR 3 cams (Price of Exchange = 1 wine per camera)
Final          7 W                       3 W
                  3 C                        1 C

Both parties experience economic growth because they're production plot lies on the outside of the curve. Going back to (1), for the two schools to be able to trade, 3/4 wine < P cam < 2 wines  AND  1/2 cam < P wine < 4/3 cam. Since the price of exchange is 1 wine per camera, this falls within the ranges of both, so both experience economic growth.

3.) The main point of today's lecture was that self-sufficiency is the road to poverty. People should be social and trade rather than take everything into their own hands.
    - Trade = a non-technical form of production that is much more efficient than self-sufficient production. Trade creates substantially more economic growth than self-sufficiency and so it is the more desirable route for most people. For this reason, countries that impose tariffs and exchange constraints on their citizens are costing the economy a lot.