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Absolute and Comparative Advantage, and TRADE

Absolute and Comparative Advantage, and TRADE. Absolute advantage. One nation can produce more output with the same resources as the other. Comparative advantage. One nation can produce a good at a lower opportunity cost than the other. Examples of comparative advantage.

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Absolute and Comparative Advantage, and TRADE

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  1. Absolute and Comparative Advantage,and TRADE

  2. Absolute advantage • One nation can produce more output with the same resources as the other

  3. Comparative advantage • One nation can produce a good at a lower opportunity cost than the other

  4. Examples of comparative advantage • Lawyer and secretary • Doctor and nurse

  5. INPUT METHOD • A COMPARISON OF THE OPPORTUNITY COST OF THE RESOURCES EMPLOYED TO PRODUCE THE SAME OUTPUT OF DIFFERENT GOODS OR SERVICES

  6. INPUT: UNDER Mow a lawn Trim a lawn TY 60 minutes 40 minutes Jessica 75 minutes 90 minutes

  7. The opportunity cost of producing the other good Is Always The Reciprocal

  8. Save Time: It’s Always The Reciprocal! • If Ty’s cost to mow a lawn is 3/2’s trimmed lawns; then Ty’s cost to trim a lawn is 2/3’s mowed lawns • If Jessica’s cost to mow a lawn is 5/6’s trimmed lawns; then Jessica’s cost to trim a lawn is 6/5’s mowed lawns

  9. OUTPUT METHOD • A COMPARISON OF THE OPPORTUNITY COST OF THE PRODUCTIVITY (OR OUTPUT) OF DIFFERENT GOODS OR SERVICES, USING THE SAME RESOURCES • ie: output per hour, or per acre

  10. Adjust the paradigm

  11. OUTPUT: OVER Radios Speakers Mark 6 2 Doreen 10 5

  12. Determining comparative advantage (output method) (over) CDs Pounds of beef Japan 4 2 Canada 4 6 1.Which nation has a absolute an advantage in producing CD’s? 2.Which nation has a absolute an advantage in producing beef? 3.Which nation has a comparative advantage in producing CD’s? 4.Which nation has a comparative advantage in producing beef? 5.Should Japan specialize in CD’s or beef? 6.Should Canada specialize in CD’s or beef?

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