367 lecture 2

HEN 368Health Economics

Opportunity CostsProduction Possibilities Curve

Comparative Advantage



Intent

ResultResultResult

FellPushedJumped

Result the sameResult the sameResult the sameResult the sameResult the same

Why are you here?

OpportunityCostCostHighest

ValuedAlternative

ProductionPossibilities

CurveCurveCurve

Production Possibilities Frontier

iPods to iPads 3 to 1

iPads to iPods 1 to 3

iPods: 900,000 iPads: 0

iPods: 600,000 iPads: 100,000

iPods: 300,000 iPads: 200,000

iPods: 0 iPads: 300,000

Bows Out Due to Opportunity Costs

Innovation that only helps iPad production

Innovation that helps both.

Absolute Advantage

Produce more with the same resources


Produce at a lower opportunity cost

David Ricardo(1772 - 1823)

Principles of Political Economy

and Taxation


Utopia vs. Reality

Reality always loses

Realistic Alternatives

PositiveWhat is

NormativeWhat ought to be

Fact

Values

FactsTrue or False

ValuesGood or Bad

The basis for trade is comparative advantage,

not absolute advantage.

GaleGale AliAli TotalTotalHoursHours

Make a Make a HookHook

3 2 5

Catch Catch a Fisha Fish

4 1 5

TotalTotalHoursHours

7 3 10

No Trade2 Hooks and 2 Fish

10 Hours - 5 Hours per Fish

GaleGale AliAli TotalTotalHoursHours

Make a Make a HookHook

2 hooks6 hours 6

Catch Catch a Fisha Fish

2 fish2 hours 2

TotalTotalHoursHours

6 2 8

With Trade2 Hooks and 2 Fish

8 Hours - 4 Hours Per Fish

Saudi Idaho

Dates Potatoes

24 0

20 1

16 2

12 3

8 4

4 5

0 6

Ratios24 to 6

4 Dates for 1 Potato6 to 24

1/4 Potato for 1 Date

Dates Potatoes

6 0

5 5

4 10

3 15

2 20

1 25

0 30

Ratios6 to 30

1/5 Dates for 1 Potato30 to 6

5 Potatoes for 1 Date

Saudi Arabia Idaho

24

30

6

6 Potatoes15

12

3

3

9

15

18

21

9 12 18 21 24 2700

27

Should Idaho and Saudi Trade?Dates

SaudiPPF

IdahoPPF

Dates Potatoes

6 0

5 5

4 10

3 15

2 20

1 25

0 30

Dates Potatoes

24 0

20 1

16 2

12 3

8 4

4 5

0 6

InternalInternalPricePrice DatesDates PotatoesPotatoes

Idaho 5 Potatoes 1/5 Date

Saudi 1/4 Potato 4 Dates

No TradeNo Trade DatesDates PotatoesPotatoes

Idaho 3 15

Saudi 12 3

Total 15 18

SpecializeSpecialize DatesDates PotatoesPotatoes

Idaho 0 30

Saudi 24 0

Total 24 30

AnalysisAnalysis DatesDates PotatoesPotatoes

No TradeTotals 15 18

SpecializeTotals 24 30

Gain +9 +12

TradeTrade DatesDates PotatoesPotatoes

Idaho 3 to 12 = +9 15

California 12 3 to 15 = +12

Total 24 30

24

30

6

6 Potatoes15

12

3

3

9

15

18

21

9 12 18 21 24 2700

27

Should Idaho and Saudi Trade?Dates

SaudiPPF

IdahoPPF

TradePPF

Idaho gains

9 Dates

Saudi gains

12 potatoes

MarketsWhere Buyers and

Sellers TradeWhere Buyers and

Sellers TradeWhere Buyers and

Sellers Trade

367 lecture 2

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Transcript of 367 lecture 2