Weighing Opportunity Costs Essay examples

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CONCEPTS OF MICROECONOMICS

Weighing Opportunity Costs

In our first week of Microeconomics we are looking closely at a specific scenario. We will use what we read and what we learned the first week, about the basics of Microeconomics. We will look closely at opportunity costs and at comparative advantages. The scenario this week is as follows. Two people, Michelle and James live alone in an isolated region. They each have the same resources available and they grow potatoes and raise chickens. If Michelle decides to use all her resources growing potatoes, she can grow about 200 pounds a year. If she devotes all her resources to raising chickens, she can raise 50 a year. If James devotes all his resources to growing
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If Michelle devotes all her resources to growing potatoes she will grow 200 potatoes. If James devotes all his resources to growing potatoes he will grow 80 potatoes. In this case Michelle has the absolute advantage of growing potatoes. If Michelle devotes all her resources to raising chickens she will raise 50 chickens. If James devotes all his resources to raising chickens he will raise 40 chickens. In this case Michelle also has the absolute advantage. Which person has a comparative advantage in potatoes? The law of comparative advantage refers to the ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost over another, even if one country is more efficient in the production of all goods than the other (Comparative Advantage, 2006). I believe that Michelle still has the comparative advantage is growing potatoes, because if they each put in all of their resources she produces 120 more pounds of potatoes than James. Which person has a comparative advantage in raising chickens? I believe that that James has the comparative advantage of this one. The reason is because if they both put in all of their resources, Michelle only raises 10 more chickens than James does. Suppose that they are thinking of each specializing completely in the area in which they have a comparative advantage, and then

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