Gainzzz

In chapter three we read more into the production possibilities graph and how specialization and trade can, of course, better economies. We also learned several new terms such as absolute advantage which is the ability to produce more goods with fewer inputs than another producer.

Comparative advantage was the big thing here. Mr. Waller thought I hadn't learned it but here I am with it memorized. Comparative advantage is the ability to produce an output with a lower opportunity cost than another producer.

In the book we are given the example of the farmer and the rancher. They each face a trade off between and potatoes. They could always make an equal amount of each but when we figure out that there is an opportunity cost and which has a comparative advantage with what, we are able to see that with trade, they could each have more. More in comparison to each trying to make and equal amount of both meat and potatoes. So in the end as long as they both have more with trading than them producing alone, they are better off. Each will always have a comparative advantage because if one has a lower opportunity cost in on thing, that's what they'll produce while the other has a comparative advantage in the other.

Trade = Gainzzz