Opportunity Cost  The value of the next best alternative  Example: The opportunity cost of studying on a Friday night might be missing your high school team’s football game  Why would Lebron James chose NOT to attend college and play college basketball?  What would be the opportunity cost of Lebron going to college?

Comparative Advantage  The ability to produce something at a lower opportunity cost than other producers  If Miss Feutz decides to stay in and study on a Friday night instead of going to a football game, she has a comparative advantage over Mariah who would have to disappoint the cheerleading team if she stayed in to study instead of going to the game.  Can you think of an example of comparative advantage?

Law of Comparative Advantage  An individual, firm, region or country with the lowest opportunity cost of producing a good should specialize in that good  For example, if, using machinery, a worker in one country can produce both shoes and shirts at 6 per hour, and a worker in a country with less machinery can produce either 2 shoes or 4 shirts in an hour, each country can gain from trade because their internal trade-offs between shoes and shirts are different. The less-efficient country has a comparative advantage in shirts, so it finds it more efficient to produce shirts and trade them to the more-efficient country for shoes.  Can you think of an example?

Absolute Advantage  The ability to produce something using fewer resources than other producers.  America has more machinery than North Africa. Therefore, America can make 5,000 sheets of paper from one tree. North Africa can only make 2,000 sheets of paper from one tree. Therefore, America has an absolute advantage over North Africa in paper production.  Can you think of an example?

Independent Practice  Write your own definition of “opportunity cost.”  In your own words, describe the difference between “comparative advantage” and “absolute advantage.”

Discussion  Should a country produce everything it wants? Why or why not?  If Country A is better than Country B at producing everything, would Country A gain anything by trading with Country B?  When a new home is built, why doesn’t one person do the carpentry, electrical, plumbing and landscaping?

Assignment  Go to the school website and complete the assignment entitled, “Comparative and Absolute Advantage”  You may write your answers on a piece of paper, or on your iPad. If done on your iPad, them to