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EC2010C | Tue. & Fri. | 13h45–15h05 | PL-1

PRINCIPLES of MICROECONOMICS

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SPECIALIZATION &

THE GAINS FROM TRADE

(or, why Gilligan & Mary Ann

should specialize and trade)

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MODEL

REAL

WORLD

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and

Mary

Ann’s

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and

Mary

Ann’s

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Time required for...

​

One fish

One coconut

Gilligan

4 hrs

2 hrs

Mary Ann

1 hr

1 hr

TECHNOLOGY

Gilligan

8 hrs

Mary Ann

8 hrs

RESOURCES

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Fish caught

Coconuts gathered

4

8

8

0

0

2

Mary Ann’s � PPF

Gilligan’s � PPF

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Opportunity cost of...

​

One fish

One coconut

Gilligan

Two coconuts

Half a fish

Mary Ann

One coconut

One fish

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Opportunity cost of...

​

One fish

One coconut

Gilligan

Two coconuts

Half a fish

Mary Ann

One coconut

One fish

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Gilligan

gathers

coconuts

Fish caught

Coconuts gathered

4

8

8

0

0

2

Mary Ann � catches

fishes

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Fish caught

Coconuts gathered

4

8

8

0

0

2

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Fish caught

Coconuts gathered

4

8

8

0

0

2

1 nut

1 fish

1

7

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Fish caught

Coconuts gathered

4

8

8

0

0

2

2

2 nuts

1 fish

7

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Fish caught

Coconuts gathered

4

8

8

0

0

2

1

2

4

2 nuts

1 fish

2 nuts

1 fish

7

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Fish caught

Coconuts gathered

4

8

8

0

0

2

4

1.5 nuts

1 fish

1.5 nuts

1 fish

1

7

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Fish caught

Coconuts gathered

4

8

8

0

0

2

4

1.5 nuts

1 fish

1.5 nuts

1 fish

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Fish caught

Coconuts gathered

4

8

8

0

0

2

4

1.5 nuts

1 fish

1.5 nuts

1 fish

​

Consumption

Possibilities

Frontier

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Fish caught

Coconuts gathered

4

8

8

0

0

2

2

4

4 nuts

5 fish

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Fish caught

Coconuts gathered

4

8

8

0

0

2

4

1.5 nuts

1 fish

1.5 nuts

1 fish

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Fish caught

Coconuts gathered

4

8

8

0

0

2

4

1.5 nuts

1 fish

Question:

But what if Mary Ann likes coconuts much more than fish?

​

Answer:

Specialize and trade.

​

​

​

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COMPARATIVE

PRINCIPLE OF

ADVANTAGE

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Do you really wanna rely on

to gather coconuts for you?

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REAL

WORLD

MODEL

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IN-CLASS

ACTIVITY

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LEBRON

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CLEVELAND

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SPECIAL EDITION SHOES

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BABE

RUTH

BABE

RUTH

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MESSI

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MIKHAIL

BARYSHNIKOV

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OTHER

EXAMPLES?

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IN-CLASS

ACTIVITY

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THE LOW-HANGING FRUIT PRINCIPLE

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Coconuts gathered

8

8

0

0

2

4

12

10

Fish caught

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Fish caught

Coconuts gathered

8

8

0

0

2

4

12

10

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Fish caught

Coconuts gathered

8

8

0

0

2

4

12

10

Total production with

complete specialization

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Fish caught

Coconuts gathered

8

8

0

0

2

4

12

10

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Fish caught

Coconuts gathered

8

8

0

0

2

4

12

10

Total production if Mary Ann

specializes away from her

comparative advantage

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Fish caught

Coconuts gathered

8

8

0

0

2

4

12

10

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Good X

Good Y

0

0

See pp. 43–45

of your book

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Good X

Good Y

0

0

See pp. 43–45

of your book

PPF with increasing

opportunity costs of production

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Good X

Good Y

0

0

See pp. 43–45

of your book

PPF with increasing

opportunity costs of production

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Good X

Good Y

0

0

See pp. 43–45

of your book

PPF with increasing

opportunity costs of production

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PRINCIPLES of MICROECONOMICS

UPSIDES AND DOWNSIDES OF

THE DIVISION OF LABOR

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Adam Smith

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pin factory

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Karl

Marx

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“They mutilate the laborer

into a fragment of a man”

—Karl Marx, Capital

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“He…becomes as stupid and ignorant as it is possible for a human creature to become”

—Adam Smith, Wealth of Nations

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“Specialization is for

insects”

—Science fiction writer

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HOMEWORK

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Author’s claims to this work and attribution for others’ work.

​

This work is the sole responsibility of the author and not any institution with which the author is affiliated.

​

Except for the copyrighted material listed below, this work is licensed under a CC Attribution-ShareAlike 4.0 International liscence (http://creativecommons.org/licenses/by-sa/4.0/). You are free to share and adapt this work for any purpose, but you must give appropriate credit, and you must share any adaptations under the same license.

​

The exceptions are as follows.

​

​

is “Price-Tag” (http://thenounproject.com/term/price-tag/18095/) �by Atelier Iceberg from the Noun Project, used under a CC BY 3.0 license.

​

The map of AUP is taken from AUP. The map of Paris is taken from Google Earth.

The maps are used under fair use for educational purposes.

is "Island" (http://thenounproject.com/term/island/42906/)

by Athena Manolopoulos from the Noun Project, used under a CC BY 3.0 license.

​

is "Fish" (http://thenounproject.com/term/fish/7770/)

by Tonielle Krisanski from the Noun Project. The work is in the public domain.

is "Coconut" (http://thenounproject.com/term/coconut/40643/)

by Iain Hector from the Noun Project, used under a CC BY 3.0 license.

is "Apple” �by Blake Thompson from the Noun Project, used under a CC BY 3.0 license.