Ch. 4.3 How do People and Nations Benefit from Specialization & Trade?

Key Terms Define #8-11 #6-7 will be defined in notes

Absolute Advantage The condition that exists when someone can produce a good or service using fewer resources than someone else.

Absolute Advantage Example: Joe owns his boat, grew up working on his father’s boat, and has 12 hours a day to fish. He has absolute advantage over the other fisherman in his town who have less experience, rent their boats, and only have 8 hours a day to fish.

ABSOLUTE ADVANTAGE Absolute Advantage in Production Possibilities Who has the absolute advantage in bananas and cell phones? Bananas Cell Phones Total Guatemala 500 50 550 China 75 575

Comparative Advantage The condition that exists when someone can produce a good or service at a lower opportunity cost than someone else. Remember, Opportunity cost is the value of what you give up to do something else instead. Example: Joe can fish and make $20/hour in profit, or he can charter his boat for fishing trips and make $40/hour. He has the comparative advantage in chartering.

Comparative Advantage Example: Joe can fish and make $20/hour in profit, or he can charter his boat for fishing trips and make $40/hour. He has the comparative advantage in chartering.

Comparative ADVANTAGE Comparative Advantage in Production Possibilities Who has the comparative advantage in bananas? Cell phones? Bananas Cell Phones Total Guatemala 500 50 550 China 75 575

VIDEO CLIPS A little Gilligan’s Island Now, to explain absolute & context… comparative advantage…

WHO DOES Specialization Benefit? Specialization benefits both sides of the voluntary exchange.

WHO DOES Specialization Benefit? Both sides use their resources to their comparative advantage.

factors that give rise to comparative advantage Climate Natural resources Education Wage levels Technological differences

Absolute advantage & comparative advantage worksheet Go to Flipchart. Get out a half sheet of paper for the exit ticket.

Absolute Advantage

Comparative Advantage

EXIT TICKET Writing Prompt “Free trade is good for America.” Write two sentences in support of this statement. Then write one or two sentences that refute it.