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 Lawyer and secretary Doctor and nurse

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

INPUT: UNDER Mow a lawn Trim a lawn TY60 minutes40 minutes Jessica75 minutes90 minutes

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

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

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

Adjust the paradigm

OUTPUT: OVER RadiosSpeakers Mark62 Doreen105

Determining comparative advantage (output method) (over) CDsPounds of beef Japan 42 Canada 46 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?