Transcript COMPARATIVE AND ABSOLUTE ADVANTAGE

8/26/14
 What
do you know about sweat
shops? What do you think about
them? Are they ever justified? Do
you think that the work presented
in the film yesterday was an
example of ‘sweat shop’
conditions? Why or why not?
Economists can define comparative and
absolute advantage. Economists can analyze
PPF graphs to determine comparative
advantage.
ESSENTIAL QUESTIONS:
How does comparative advantage support global
trade? What are some problems with comparative
advantage? How can we determine when an
economy has a comparative advantage?
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http://www.bing.com/videos/search?q=sweatsh
op+conditions%2c+interview&FORM=HDRSC3#vi
ew=detail&mid=9CCF53DC847A673B66589CCF5
3DC847A673B6658
What are some of the working conditions this
person describes? How much does she make in a
week?
How do these working conditions impact her life?
How does she propose to fix it?
Why do you think she makes such a low wage?
Will her proposal be put into effect? Why/why
not?
Production Possibilities Frontier (PPF)-a
diagram representing maximum combinations
of goods and /or services an economy can
produce when all resources are fully employed
Absolute Advantage: a country’s ability to
produce more of a given product than can
another country
Comparative Advantage: a country’s ability to
produce a given product relatively more
efficiently than another country: production at
a lower opportunity cost
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Do you think sweatshops are an example of
absolute advantage or comparative
advantage? Support your answer.
Suppose….Jordan can produce either 3 pizzas
or 12 cookies
…and, Mia can produce 8 pizzas or 4 cookies
What is the opportunity cost of producing 1
pizza?
Jordan=12/3=4, so 1pizza=4 cookies
Mia=4/8, so 1 pizza =.5 cookies
So, who has comparative advantage?
Who should produce the pizza?
Suppose….Jordan can produce either 3 pizzas or
12 cookies
…and, Mia can produce 8 pizzas or 4 cookies
What is the opportunity cost of producing
1cookie?
Jordan= 3/12=.25 pizza for one cookie
Mia=8/4=2 pizzas for one cookie
So, who has comparative advantage?
Who should produce the cookie? Using the term
‘opportunity cost’, explain why.
Jalen can produce 5 photos or 10 paragraphs.
Malaya can produce 15 photos or 5
paragraphs.
1)
2)
3)
4)
What is the opportunity cost for both Malaya
and Jalen to produce 1 photo?
What is the opportunity cost for both Malaya
and Jalen to produce 1 paragraph?
Who has the comparative advantage for
each product?
Who should produce the photos? Who
should write the paragraphs?
Jalen=10/5=2, so,1 photo=2 paragraphs
Malaya=5/15=.333, so 1photo=.333
paragraphs
2) Jalen=5/10=.5, so 1 paragraph=.5 photos
Malaya=15/5=3, so, 1 paragraph=3 photos
3) Jalen has a comparative advantage in
producing paragraphs while Malaya has a
comparative advantage in producing photos.
1)
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Country Alpha: 40 coffee, 0 Cashews
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8 cashews, 0 coffee
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4 cashews, 20 coffee
So, what is the opportunity cost of
cashew production?
8 cashews= 40 coffee or 1
cashew=5 coffee
What is the opportunity cost of
coffee production?
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Country Beta: 6 cashews, 0 coffee
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0 cashews, 6 coffee
 Beta’s opportunity cost of production
of cashews:
 6 cashews=6 coffee or 1
cashew=1coffee
 What is the opportunity cost of coffee
production?
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Which country has a comparative advantage
when producing coffee? How do you know?
(USE THE TERM OPPORTUNITY COST IN YOUR
EXPLANATION)
Which country has a comparative advantage
when producing cashews? How do you know?
(USE THE TERM OPPORTUNITY COST IN YOUR
EXPLANATION)
Which country has an absolute advantage in
coffee production?
Which country has an absolute advantage in
cashew production?
So, which country should produce cashews?
Coffee?
Use this data:
Mr. Mitchell can produce either 6 chocolate bars or
12 scones.
M. Sergeant can produce either 4 chocolate bars or
12 scones.
1) What is the opportunity cost for each to
produce 1 chocolate bar?
2) What is the opportunity cost for each to
produce 1 scone?
3) Using the terms comparative advantage, and
opportunity cost, explain who should produce
each and why.
HW: For Friday, Read the article on sweat shops
and answer the questions.