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Through division knowledge
°
the of knowledge the ,
sum total of increases
does
and so
productivity ( human brain is limited in capacity ,
ooo easier to divide
knowledge among many brains and then TRADE the products of our
knowledge )
leads to
higher productivity
°
t INNOVATION
°
THEORY OF COMPARATIVE ADVANTAGE
people / nations specialize
when in
goods for which
they have a LOW OPPORTUNITY cost,
they
trade to mutual advantage ( I firm becomes
can t as the nation more
productive ,
the
demand to trade because
increases the opportunity cost
for other tasks increase +
they
become COMPARATIVELY WORSE at producing other goods .
)
→
low (
opportunity ) and
To should it make at
goods buy
cost
increase its wealth , a country produce the can a
the
goods it can
only make at
high (
opportunity ) costs .
Mexico additional shirt the
for
the United States
every ,
µ .iq#*e. . . . ;H. . . . . q. . ,op o., un,mw
µ :IYI¥on=consum¥n
computers computer
:\
• -
ppcu.su US produces 1 fewer computer
22
/ also
5 -
20 -
Co : cost of 1
computer
a -
i: : Ii
'
= tshirt)
14 -
,µ
.
.
.. .
, of .am g.e.ee
.
. .
-----ope=f %)
o
i V. s than Mexico T
-
>
in
( even
-
I 4 -
i
!
8€
though
2-
Mexico is less productive
2
!
8 " "
spires
Z " b " ° " ° " " ' 820 "
shirts
than the U.s .
yo , eye
y additional o : Mexico has a COMPARATIVE A- D VANTAGE
shirt ,
Mexico produces 46M less
of a computer in
producing shirts & the V S
-
-
has a
to produce additional computer Mexico COMPARATIVE ADVANTAGE producing
every ,
in
6 shirts 11<6 )
gives up
-
computers
Thus , theory dictates ,
in such a situation ,
U S -
-
should make computers and buy shirts
,
while
Mexico should shirts and
make
buy computers
Through division knowledge
°
the of knowledge the ,
sum total of increases
does
and so
productivity ( human brain is limited in capacity ,
ooo easier to divide
knowledge among many brains and then TRADE the products of our
knowledge )
leads to
higher productivity
°
t INNOVATION
°
THEORY OF COMPARATIVE ADVANTAGE
people / nations specialize
when in
goods for which
they have a LOW OPPORTUNITY cost,
they
trade to mutual advantage ( I firm becomes
can t as the nation more
productive ,
the
demand to trade because
increases the opportunity cost
for other tasks increase +
they
become COMPARATIVELY WORSE at producing other goods .
)
→
low (
opportunity ) and
To should it make at
goods buy
cost
increase its wealth , a country produce the can a
the
goods it can
only make at
high (
opportunity ) costs .
Mexico additional shirt the
for
the United States
every ,
µ .iq#*e. . . . ;H. . . . . q. . ,op o., un,mw
µ :IYI¥on=consum¥n
computers computer
:\
• -
ppcu.su US produces 1 fewer computer
22
/ also
5 -
20 -
Co : cost of 1
computer
a -
i: : Ii
'
= tshirt)
14 -
,µ
.
.
.. .
, of .am g.e.ee
.
. .
-----ope=f %)
o
i V. s than Mexico T
-
>
in
( even
-
I 4 -
i
!
8€
though
2-
Mexico is less productive
2
!
8 " "
spires
Z " b " ° " ° " " ' 820 "
shirts
than the U.s .
yo , eye
y additional o : Mexico has a COMPARATIVE A- D VANTAGE
shirt ,
Mexico produces 46M less
of a computer in
producing shirts & the V S
-
-
has a
to produce additional computer Mexico COMPARATIVE ADVANTAGE producing
every ,
in
6 shirts 11<6 )
gives up
-
computers
Thus , theory dictates ,
in such a situation ,
U S -
-
should make computers and buy shirts
,
while
Mexico should shirts and
make
buy computers
