[Eng.economics] Lecture #3
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Transcript of [Eng.economics] Lecture #3
7/23/2019 [Eng.economics] Lecture #3
http://slidepdf.com/reader/full/engeconomics-lecture-3 1/16
Thai Nguyen University
Thai Nguyen University of Technology
Faculty of International Training
(ECEN 4503)
Engineering Economics
Lecture #3:
Interdependence and The Gains
rom TradeThu! "th "0$5
Lecturer: Ngu%en &inh ' h!*!
7/23/2019 [Eng.economics] Lecture #3
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+e,ie-ing
1/1/16Department of Electrical Engineering taught in English2
Ten principles
of economics- How peoplemake decision
- How theyinteract
- How theyorganized
Think likeaneconomist
- Scientists- Policy-makers
Interdepende
nce and thegains fromtrade
7/23/2019 [Eng.economics] Lecture #3
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.hat is interdependence/
1/1/16Department of Electrical Engineering taught in English3
our every!ay life"#a$ing up in the morning
#ashing tooth %y the %rush an! toothpaste ma!e %y &olgate'
Drin$ing coffee gro(n in Dac )ac province'
Eating %rea$fast (ith *cecoo$ noo!le'+oing to school %y car ma!e in U,*'
Etc'
Every!ay (e rely on many people from aroun! the (orl!'
7/23/2019 [Eng.economics] Lecture #3
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$! ara12e or the &odern Economics
1/1/16Department of Electrical Engineering taught in English-
*ssume the (orl! consists of only t(o people"* cattle rancher
* potato farmer
pro!ucing only t(o $in!s of foo!s"
.eatsotatoes
&ase 1" Each person can pro!uce only one $in! of foo!s'Tra!e allo(s them to en0oy greater variety" meat an! potatoes'
&ase 2" Each person can pro!uce %oth meat an! potatoes %ut agreater cost' It is o%vious that they can %enefit %y specialiing an! tra!ing'
7/23/2019 [Eng.economics] Lecture #3
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ara12e or the &odern Economics
1/1/16Department of Electrical Engineering taught in English
&ase 3" 4ne person is %etter at pro!ucing every goo!s'This person should stay in self-sufficient? What is reason for
specializing and trading?
ro!uction possi%ility 5a combination of goods that an economy may
produce,uppose that each person (or$s -7 hours a (ee$
Hours needed tomake 1 pound of:
Amountproduced in 4
hoursMeat Potatoes Meat Potatoes
!armer 20hours/lb
10hours/lb
2 lb 4 lb
"ancher 1 hour/lb 8 hour/lb 40 lb lb
7/23/2019 [Eng.economics] Lecture #3
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ara12e or the &odern Economics
1/1/16Department of Electrical Engineering taught in English6
ro!uction possi%ility frontier
The farmer!s and "ancher!s productionpossibilities frontiers
7/23/2019 [Eng.economics] Lecture #3
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ara12e or the &odern Economics
1/1/16Department of Electrical Engineering taught in English8
,pecialiation an! tra!e"*fter several year one might fin! that they can %e %etter %y
specialiing an! tra!ing'
eore specia2iing: ter specia2iing and trading# pounds meat $ 1
pound potatoes
.eat otatoes .eat otatoes
armer 1l% 527 hour 2 l% 527 hour 7 l% 57 hour 3 l%
- l% 5-7 hour 3 l%
+ancher 27 l% 527 hour 2' l% 527 hour 2- l% 52- hour
21 l%
2 l% 516 hour
3 l%
7/23/2019 [Eng.economics] Lecture #3
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ara12e or the &odern Economics
1/1/16Department of Electrical Engineering taught in English9
,pecialiation an! tra!e"&hange after tra!ing
7/23/2019 [Eng.economics] Lecture #3
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ara12e or the &odern Economics
1/1/16Department of Electrical Engineering taught in English:
ule" If the rancher is better in producing both goods, how the farmer
ever specialize in doing what he is doing best?
*%solute a!vantage
The comparison among producers of a good according to their productivity.
Hours needed tomake 1 pound of:
Amountproduced in 4
hoursMeats Potatoes Meats Potatoes
!armer 20hours/lb
10hours/lb
2 lb 4 lb
"ancher 1 hour/lb 8 hour/lb 40 lb lb
7/23/2019 [Eng.economics] Lecture #3
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"! The rincip2e o Comparati,e d,antage
1/1/16Department of Electrical Engineering taught in English17
4pportunity cost an! comparative a!vantageOpportunity cost of some item is what we must give up to get that
item.
Hours needed tomake 1 pound of:
%pportunity cost of:
Meat Potatoes 1 lb of meat 1 lb ofpotatoes
!armer 20
hours/lb
10 hours/lb 2 lbs
potatoes
1/2 lb meat
"ancher 1 hour/lb 8 hour/lb 1/8 lbpotatoes
8 lbs meat
7/23/2019 [Eng.economics] Lecture #3
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The rincip2e o Comparati,e d,antage
1/1/16Department of Electrical Engineering taught in English11
4pportunity cost an! comparative a!vantageComparative advantage the comparison among producers of a
good according to their opportunity cost.
Hours needed tomake 1 pound of:
%pportunity cost of:
Meat Potatoes 1 lb of meat 1 lb ofpotatoes
!armer 20hours/lb 10 hours/lb 2 lbs ofpotatoes 1/2 lb ofmeat
"ancher 1 hour/lb 8 hour/lb 1/8 lb ofpotatoes
8 lbs ofmeat
7/23/2019 [Eng.economics] Lecture #3
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The rincip2e o Comparati,e d,antage
1/1/16Department of Electrical Engineering taught in English12
&omparative a!vantage an! tra!eTrade can benefit everyone in society because it allows people to
specialize in activities in which they have a comparative
advantage.
3 l% of meats ; 1 l% of potatoes
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6hou2d Tiger .ood mo- his o-n 2a-n/
1/1/16Department of Electrical Engineering taught in English13
Tiger #oo!s < +olf star .o(ing la(n2 hour
.a$ing a!vertising vi!eo
=7777/hr
Forest +um < The %oy ne>t !oor .o(ing la(n
- hour #or$ing at .c Donal!=27/hr
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6hou2d Tiger .ood mo- his o-n 2a-n/
1/1/16Department of Electrical Engineering taught in English1-
#oo! has a%solute a!vantage of mo(ing %ut +um has
comparative a!vantage?
#oo! shoul! ma$e the a!vertising vi!eo an! hire Forest
+um to mo( his la(n'
7ours needed to
mo-
8pportunit% cost o mo-ing the 2a-n
Tiger .ood 2 hours .a$ing a!vertisingvi!eo
=177777
orest Gum - hours #or$ing at .c Donal! =97
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6hou2d the 9!6! trade -ith other countries/
1/1/16Department of Electrical Engineering taught in English1
Imports goods produced abroad and sold domestically Exports goods produced domestically but sold abroad
U,* one (or$er can pro!uce4ne car per month
2 tons of foo! per month@apan4ne car per month
1 ton of foo! per month
7/23/2019 [Eng.economics] Lecture #3
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Conc2usion
1/1/16Department of Electrical Engineering taught in English16
Inter!epen!ence,pecialie an! tra!e
*%solute a!vantage
&omparative a!vantage
International trade is not like a war, in which some countries
win and lose. Trade allows all countries to achieve greater
prosperity.