March 23/24, 2015 Announcements:  4/2/15 Due:  Macro bodies project  Unit 5 notebook  Vocab journal  Study guide EQ’s  What kind of effect would a tariff have on American businesses?  How would a free trader view NAFTA? Standard SSEIN1 Warmups:  Give 3 examples of trade barriers.  Give 3 examples of trading blocs.  Which trade barrier is used to make a political statement by forbidding trade of any kind and/or using economic sanctions? Agenda:  Notes  Graded activity due at the end of the period.

Comparative Advantage SSEIN1 The student will explain why individuals, businesses and governments trade goods and services. a)Define and distinguish between absolute advantage and comparative advantage. b)Explain that most trade takes place because of comparative advantage in the production of a good or service.

Two types of trade advantages Absolute Advantage Comparative Advantage  Compares opportunity costs across countries  Compares industry productivity across countries

Absolute Advantage  You produce a good with fewer resources than another country.  This is about efficiency!!  He who has the most wins!!  No math involved CountryNumber of hours to make one iPod Number of hours to make one laptop USA1012 Japan1512 Number of iPads made in 1 hour Number of laptops made in 1 hour USA42 Japan93

Comparative Advantage  Producing a good because you have a lower opportunity cost.  You make it cheaper  Drives international trade

Comparative Advantage  Specialize in production  Specialization = more supply/variety of goods  Makes the product more efficiently than others  Has cheapest opportunity cost  Gives up the least  This one has math.

Determining Com. Adv.  Take what you did  Divide by what you coulda did  Lowest number wins. iPods  USA:  They made 10 iPods  Coulda made 12 laptops  10 ÷ 12 =.83 (opp cost)  Japan:  They made 15 iPods  Coulda made 12 laptops  15 ÷ 12 = 1.25 (opp cost)  Who has comparative advantage?

Determining Com. Adv.  Take what you did  Divide by what you coulda did  Lowest number wins. Laptops  USA:  They made 12 laptops  Coulda made 10 iPods  12 ÷ 10 = 1.2 (opp cost)  Japan:  They made 12 laptops  Coulda made 15 iPods  12 ÷ 15 =.8 (opp cost)  Who has comparative advantage?

Specialization  Comparative advantage helps determine specialization  If two countries produce the same product, the country with the lowest opportunity cost should produce the product.  OR  If it costs less to import a product than to make it, then I’ll buy it from you. CountryOpportunity cost in iPods Opportunity cost in laptops USA Japan1.25.8

You figure it out Cars  Absolute Advantage =  Comparative Advantage = Books  Absolute Advantage =  Comparative Advantage  Who should make cars?  Who should make books? CarsBooks USA1220 China1510