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Absolute Advantage and Comparative Advantage

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Absolute Advantage and Comparative Advantage. 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 Advantage and Comparative Advantage

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  1. Absolute Advantage andComparative Advantage • 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 • Lawyer and secretary • Doctor and nurse Unit 1 : Microeconomics Visual 1.4 National Council on Economic Education http://apeconomics.ncee.net

  2. The Circular Flow of Resources,Goods, Services and Money Payments Unit 1 : Microeconomics Visual 1.3 National Council on Economic Education http://apeconomics.ncee.net

  3. Possibilities CurveProduction Unit 1 : Microeconomics Visual 1.2 National Council on Economic Education http://apeconomics.ncee.net

  4. The Economic Way of Thinking • Everything has a cost. • People choose for good reasons. • Incentives matter. • People create economic systems to • influence choices and incentives. • People gain from voluntary trade. • Economic thinking is marginal thinking. • The value of a good or service is affected by • people’s choices. • Economic actions create secondary effects. • The test of a theory is its ability to predict • correctly. Unit 1 : Microeconomics Visual 1.1 National Council on Economic Education http://apeconomics.ncee.net

  5. Determining ComparativeAdvantage (Output Method) • 1. Which nation has an absolute advantage in producing CDs? • 2. Which nation has an absolute advantage in producing beef? • 3. Which nation has a comparative advantage in producing CDs? • 4. Which nation has a comparative advantage in producing beef? • 5. Should Japan specialize in CDs or beef? • 6. Should Canada specialize in CDs or beef? Unit 1 : Microeconomics Visual 1.5 National Council on Economic Education http://apeconomics.ncee.net

  6. Changes in Demand and Quantity Demanded Unit 1 : Microeconomics Visual 2.1 National Council on Economic Education http://apeconomics.ncee.net

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