Hatfields 8 hours per bushel 10 hours per

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Hatfields

Hatfields

8 hours per bushel

8 hours per bushel

10 hours per yard

10 hours per yard

Mc. Coys

Mc. Coys

15 hours per bushel

15 hours per bushel

12 hours per yard

12 hours per yard

To produce corn and cloth, the Hatfields must spend: • 8 hours for 1

To produce corn and cloth, the Hatfields must spend: • 8 hours for 1 bushel of corn • 10 hours for 1 yard of cloth • For a total of 18 production hours for 1 bushel of corn and 1 yard of cloth

To produce corn and cloth, the Mc. Coys must spend: • 15 hours for

To produce corn and cloth, the Mc. Coys must spend: • 15 hours for 1 bushel of corn (compared to 8 for Hatfields) • 12 hours for 1 yard of cloth (compared to 12 for Hatfields) • To a total of 27 hours total production for 1 bushel of corn and 1 yard of cloth

If the Hatfields produce only corn and trade 1 bushel of corn for 1

If the Hatfields produce only corn and trade 1 bushel of corn for 1 yard of cloth, they would spend: • 16 hours for 2 bushels of corn (8 x 2) • 16 hours for 1 bushel of corn and 1 yard of cloth

If the Mc. Coys produce only cloth and trade 1 yard of cloth for

If the Mc. Coys produce only cloth and trade 1 yard of cloth for 1 bushel of corn, they would spend: • 24 hours for 2 yards of cloth (12 x 2) • 24 hours to have 1 yard of cloth and 1 bushel of corn through trade

If the Hatfields and Mc. Coys specialize in the lowest cost production, how much

If the Hatfields and Mc. Coys specialize in the lowest cost production, how much time would each family gain? • Hatfields gain 2 hours (Total production before was 18, now its only 16) • Mc. Coys gain 3 hours (Total production before was 27, now its only 24)

Absolute Advantage The ability of an individual or group to carry out a particular

Absolute Advantage The ability of an individual or group to carry out a particular economic activity more efficiently than any other individual or group

Opportunity Cost • The highest-valued alternative that must be sacrificed when an action is

Opportunity Cost • The highest-valued alternative that must be sacrificed when an action is selected. • It is what the decision maker could have had instead. • Opportunity cost is not the same thing as money price.

Comparative Advantage • Having the lowest “opportunity cost” of production

Comparative Advantage • Having the lowest “opportunity cost” of production

Comparative Advantage - Corn • How much does it cost (opportunity cost) a Hatfield

Comparative Advantage - Corn • How much does it cost (opportunity cost) a Hatfield to produce 1 bushel of corn? • 4/5 yard of cloth • 1 ¼ yards of cloth • 8 hours of corn production/10 hours of cloth production • 15 hours of corn production/12 hours of cloth production

Comparative Advantage - Cloth • How much does it cost (opportunity cost) a Hatfield

Comparative Advantage - Cloth • How much does it cost (opportunity cost) a Hatfield to produce 1 yard of cloth? • 1 ¼ bushels of corn • 4/5 bushels of corn • 10 hours of cloth production/8 hours of corn production • 12 hours of cloth production/15 hours of corn production

Trade-off • In achieving certain economic goals, we may have to sacrifice others. •

Trade-off • In achieving certain economic goals, we may have to sacrifice others. • For example, when solving unemployment, we may cause inflation. • When raising taxes to redistribute money to the poor, we may depress the incentive to work • When specializing and trading, the Hatfields and Mc. Coys had to “tradeoff” self-sufficiency and security for leisure time and more material possessions.