Row % of resources devoted to production of guns Number of guns % of resources devoted to production of bread Pounds of bread

The production table contains information on the trade-off between the production of guns and bread. The information is plotted on the graph (b). As we move along the P.P curve from A to F trading bread for guns, we get fewer and fewer guns for each pound of bread and fewer guns for each pound of bread given up. That is, the opportunity cost of choosing guns over bread increases as we increase the production of guns. This concept is called the principle of increasing marginal opportunity cost. This occurs because some resources are better suited for the production of bread that for the production of guns. Putting it in economists' terminology we would say that some resources have a comparative advantage over other resources. (Colander) In definition comparative advantage means the ability to be better suited to the production of one good than to the

production of another good. In this example, some resources have a comparative advantage over other resources in the production of bread, while other resources have a comparative advantage in the production of guns. When making small amounts of guns and large amounts of bread, in the production of those guns we use the resources that comparative advantage is in the production of guns. All other resources are devoted to producing bread because the resources used in producing guns aren't good at producing bread. As we produce more and more of a good, we must use resources whose comparative advantage is in the production of the other good, in this case is more suitable for producing bread than for producing guns.

c) Combined possibilities with trade d) Production probability curve

Another way to view comparative advantage is that "Trade makes everyone better-off" (Colander) Let's consider two individuals; Carmen is a whiz at algebra she can solve four algebra problems a day or one statistic problem a day. On the other hand Carlos is a statistic whiz, he can solve four statistics problems a day or one algebra problem a day.

Algebra Statistics Algebra Statistics

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