Absolute and Comparative Advantage

Absolute and Comparative Advantage

Absolute advantage: who can produce more w/ same resources (materials, time, etc.)

U. S. Brazil

Coffee Tobacco

15

45

25

50

Absolute and Comparative Advantage

OR: Who can produce the same output with less resources

20 Math 10 Chem Problems Problems Sue 2 hrs. 1 hr.

Ann 3 hrs. 2 hrs.

Absolute and Comparative Advantage

Comparative Advantage: who can produce with lowest opportunity cost

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Absolute and Comparative Advantage

CALCULATING OPPORTUNITY COST: 1. ... with output given:

OOO

OTHER goes OVER!

...then compare opportunity costs

Absolute and Comparative Advantage

Example: Comparative advantage in tobacco?

Coffee Tobacco

U. S.

15

45

Brazil 25

50

Compare opportunity cost:

U.S.: = Brazil:

Absolute and Comparative Advantage

Example: Comparative advantage in coffee?

Coffee Tobacco

U. S.

15

45

Brazil 25

50

Compare opportunity cost:

U.S.:

Brazil:

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Absolute and Comparative Advantage

Example: Comparative advantage in coffee?

Coffee Tobacco

U. S. 15 (1C=3T) 45(1T=C) Brazil 25 (1C=2T) 50(1T=?C)

What are "terms of trade" that benefits both countries? 1 Coffee for ______ Tobacco

Brazil wants greater than _______ U.S. want less than _______

Absolute and Comparative Advantage

Example: Comparative advantage in coffee?

Coffee Tobacco

U. S. 15 (1C=3T) 45(1T=C) Brazil 25 (1C=2T) 50(1T=?C)

If the terms of trade were 1 unit of coffee for 4 units of tobacco, would Brazil trade?

on own Brazil:

trade

Absolute and Comparative Advantage

Example: Comparative advantage in coffee?

Coffee Tobacco

U. S. 15 (1C=3T) 45(1T=C) Brazil 25 (1C=2T) 50(1T=?C)

Iff tthheetetremrms osfotrfatdreawderwe 1eruen1it oufnciotfofefecforff4eeunfoitrs o4f utonbiatcscoof, twoobualdccBoO, TwHoucoldunBtrriaeszitlratrdae?de?

on own trade

on own

U.S.:

Brazil:

trade

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Absolute and Comparative Advantage

CALCULATING OPPORTUNITY COST: 2. ... with input given:

IOU

OTHER goes UNDER!

...then compare opportunity costs

Absolute and Comparative Advantage

Example: Comparative advantage in MATH

problems?

20 Math 10 Chem

Problems Problems

Sue 2 hrs. 1 hr.

Ann 3 hrs. 2 hrs.

Sue: = Ann: =

Absolute and Comparative Advantage

U. S. Brazil

Coffee 15

25

Tobacco 45

50

25

15

BRAZIL U.S.

COFFEE

45 50 TOBACCO

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Gather data: Time your partner for 30 seconds in paper folding

and in page turning.

Page turning

Paper folding

Comparative Advantage Practice

Create a chart for each of the following problems.

?First- Identify if it is a output or input question ?Second-Identify who has the ABSOLUTE ADVANTAGE ?Third-Identify who has a COMPARATIVE ADVANTAGE ?Fourth- Identify how they should specialize

Florida can produce 1000 bushels of oranges per hour or 500 bushels of peaches per hour. Georgia can produce 400 bushels of oranges per hour or 400 bushels of peaches per hour.

1. Input or output?

2. Absolute in oranges? Absolute in peaches?

3. Comparative in oranges? Comparative in peaches?

Comparative Advantage Practice

Create a chart for each of the following problems.

?First- Identify if it is a output or input question ?Second-Identify who has the ABSOLUTE ADVANTAGE ?Third-Identify who has a COMPARATIVE ADVANTAGE ?Fourth- Identify how they should specialize

1. Sara gives 2 haircuts or 1 perm per hour. Megan gives 3 haircuts or 2 perms per hour.

2. Justin fixes 4 flats or 8 brakes per hour. Tim fixes 1 flats or 5 brakes per hour.

3. Hannah takes 30 minutes to wash dishes and 1 hour to vacuum the house. Kevin takes 15 minutes to wash dishes and 45 minutes to vacuum.

4. Americans produce 50 computers or 50 TVs per hour. Chinese produce 30 computers or 50 TVs per hour.

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Comparative Advantage Practice

1. Sara gives 2 haircuts or 1 perm per hour. Megan gives 3 haircuts or 2 perms per hour.

Comparative Advantage Practice

2. Justin fixes 4 flats or 8 brakes per hour. Tim fixes 1 flats or 5 brakes per hour.

Comparative Advantage Practice

3. Hannah takes 30 minutes to wash dishes and 1 hour to vacuum the house. Kevin takes 15 minutes to wash dishes and 45 minutes to vacuum.

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Comparative Advantage Practice

4. Americans produce 50 computers or 50 TVs per hour. Chinese produce 30 computers or 50 TVs per hour.

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