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Comparative v Absolute Advantage

Comparative v Absolute Advantage. Absolute Advantage. given the exact same resources, country A can produce more of a good than country B. Comparative Advantage. given the same resources, country B produces good X at a lower opportunity cost

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Comparative v Absolute Advantage

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  1. Comparative v Absolute Advantage

  2. Absolute Advantage given the exact same resources, country A can produce more of a good than country B

  3. Comparative Advantage given the same resources, country B produces good X at a lower opportunity cost • This means B gives up less of good Y when he produces good X

  4. Two countries both make T-shirts and Jeans Country A Country B Country B can make 300 t-shirts or 100 jeans If they make 1 t-shirt they are giving up the chance to make 1/3 pair of jeans (their opportunity cost is 1/3 pair of jeans) If they make 1 pair of jeans, they are giving up the chance to make 3 t-shirts (their opportunity cost is 3 t-shirts) • Country A can make 100 t-shirts or 100 jeans • If they make 1 t-shirt they are giving up the chance to make 1 pair of jeans (their opportunity cost is 1 pair of jeans) • If they make 1 pair of jeans, they are giving up the chance to make 1 t-shirt (their opportunity cost is 1 t-shirt)

  5. Two people can wash dishes or vacuum a room Dan Cindy In one hour, Cindy can wash 1 load of dishes or vacuum 1 room If she washes 1 load of dishes, she gives up the opportunity to vacuum 1 room If she vacuums 1 whole room, she gives up the opportunity to wash 1 loads of dishes • In one hour, Dan can wash 1 load of dishes or vacuum ½ of a room • If he washes 1 load of dishes, he gives up the opportunity to vacuum ½ a room • If he vacuums 1 whole room, he gives up the opportunity to wash 2 loads of dishes

  6. Questions • Does anyone have the absolute advantage in dishwashing? • Does anyone have the absolute advantage in vacuuming? • What is Dan’s opportunity cost of washing dishes? • What is Dan’s opportunity cost of vacuuming a room? • What is Cindy’s opportunity cost of washing dishes? • What is Cindy’s opportunity cost of vacuuming a room? • Does anyone have the comparative advantage in dishwashing? • Does anyone have the comparative advantage in vacuuming?

  7. Two people can clean offices and jail cells • Andy and Hannah both clean offices and jail cells

  8. Questions • Does anyone have the absolute advantage in cleaning offices? • Does anyone have the absolute advantage in cleaning jail cells? • What is Andy’s opportunity cost of cleaning offices? • What is Andy’s opportunity cost of cleaning jail cells? • What is Hannah’s opportunity cost of cleaning offices? • What is Hannah’s opportunity cost of cleaning jail cells? • Does anyone have the comparative advantage in cleaning offices? • Does anyone have the comparative advantage in cleaning jail cells?

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