Absolute and Comparative Advantage - AP Macroeconomics Should Lebron James mow his own lawn? Absolute and Comparative Advantage - AP Macroeconomics

He has the gold, now what? “yeah, I like that mower, gotta buy that mower” Sorry, it’s my confidence talking.

Should a nation produce everything it wants? No 2. If Country A is better than Country B at producing everything, would Country A gain anything by trading with Country B? Yes When a new home is built, why doesn’t one person do the carpentry, electrical, plumbing, and landscaping? Because they don’t have the specialized skills to do the job well and in a timely manner.

Terms to Know: 1. Absolute Advantage: The ability to produce something using fewer resources than other producers. Comparative Advantage: The ability to produce something at a lower opportunity cost than other producers. Law of Comparative Advantage: An individual, firm, region or country, with the lowest opportunity cost of producing that good should specialize in that good.

Specialization: A situation in which people produce a narrower range of goods and services than they consume. Specialization increases productivity; it also requires trade and increases interdependence. Gains from Trade: The increased output from trade; with trade, each individual, region or nation is able to concentrate on producing goods and services that it produces efficiently, while trading to obtain goods and services it does not produce.

Lebron James Example: 1. Lebron James is a great basketball player and lawn mower. 2. He has a young neighbor who is willing to mow his lawn. Lebron can mow his lawn in two hours. He could also make a Nike commercial in this time and make $50,000.00. Scotty can mow Lebron’s lawn in four hours and make $10/hour.

Here’s little Scotty.

Who has the absolute advantage in mowing the lawn? - Lebron. He can do it in less time. Who has the comparative advantage in mowing the lawn? - Scotty. He can do it at a lower opportunity cost ($40 vs $50,000).

If Britain has a comparative advantage over France in the production of cars, then... the opportunity cost of producing cars in Britain is lower than in France. higher than in France. C. there are no gains from specialization and trade in cars between Britain and France. only Britain will gain from specialization and trade in

If Britain has a comparative advantage over France in the production of cars, then... the opportunity cost of producing cars in Britain is lower than in France. higher than in France. C. there are no gains from specialization and trade in cars between Britain and France. only Britain will gain from specialization and trade in

2. If people specialize in producing those goods for which they possess a comparative advantage, then the economy as a whole can produce a greater quantity of goods. a. True b. False True

The law of comparative advantage says that a person should produce a good if he or she... a. has the greatest desire to consume that good b. has the lowest opportunity cost of producing that good c. has an absolute advantage in a related activity d. has a comparative advantage in a related e. is equally good at producing this good as someone else is

The law of comparative advantage says that a person should produce a good if he or she... a. has the greatest desire to consume that good b. has the lowest opportunity cost of producing that good c. has an absolute advantage in a related activity d. has a comparative advantage in a related e. is equally good at producing this good as someone else is

4. John takes 10 minutes to iron a shirt and 20 minutes to type a paper. Harry takes 10 minutes to iron a shirt and 30 minutes to type a paper. Which of the following statements is correct? a. Harry has a comparative advantage in ironing. b. Harry has a comparative advantage in typing. c. Harry has an absolute advantage in typing. d. Harry has an absolute advantage in ironing. e. Neither can gain from specialization and exchange

4. John takes 10 minutes to iron a shirt and 20 minutes to type a paper. Harry takes 10 minutes to iron a shirt and 30 minutes to type a paper. Which of the following statements is correct? a. Harry has a comparative advantage in ironing. He gives up the least in terms of typing papers. b. Harry has a comparative advantage in typing. c. Harry has an absolute advantage in typing. d. Harry has an absolute advantage in ironing. e. Neither can gain from specialization and exchange