Comparative and Absolute Advantage

Where does your “stuff” come from? 1. Look around the room at the clothes people are wearing 2. Make a list of where they were made. What do you notice?

Why Trade? Countries have an UNEQUAL distribution of resources, so must trade in order to get everything they want/need. Some unequal distribution is caused naturally, some by government policies & historical patterns.

Trade and Specialization Specialization -producers (individuals or nations) decide to only produce certain goods Example = US produces wheat & soybeans, but doesn’t mass produce diamonds or coffee Costa Rica specializes in producing coffee, sells the coffee & buys other things that it needs. Better for countries to specialize in products & then engage in trade.  World economy more efficient w/each country producing whatever requires the least sacrifice. https://www.youtube.com/watch?v=NI9TLDIP Vcs

How to make everyone happy? See who has the COMPARATIVE ADVANTAGE Absolute Advantage: Ability to produce more units of a good or service than some other producer using same quantity of resources. Comparative Advantage: Ability to produce a good or service at a lower opportunity cost than another producer If individuals & countries specialize in producing goods in which they have comparative advantage & trade for goods in which the other has comparative advantage both parties will be better off. https://www.youtube.com/watch?v=tzXzkAs_cf0 STOP @2:10!

KEY TAKEAWAY: Every country, no matter how advanced/behind in productivity of its labor compared to others, is able to engage in beneficial trade A country w/ productivity advantage over others wouldn’t export everything, but only those goods in which it had a comparative advantage. An advanced country would find it advantageous to import goods even if it could produce those goods more efficiently than other countries. Countries behind tech frontier w/out ‘absolute’ productivity advantage in anything could still export goods in which comparative disadvantage was the least https://www.youtube.com/watch?v=U12yZXBmQmY

Should LeBron James Mow His Own Lawn?

Lawyer & Secretary