ABSOLUTE ADVANTAGE V. COMPARATIVE ADVANTAGE ABSOLUTE ADVANTAGE FASTER, MORE, MORE EFFICIENT COMPARATIVE ADVANTAGE LOWER OPPORTUNITY COST.

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Presentation transcript:

ABSOLUTE ADVANTAGE V. COMPARATIVE ADVANTAGE ABSOLUTE ADVANTAGE FASTER, MORE, MORE EFFICIENT COMPARATIVE ADVANTAGE LOWER OPPORTUNITY COST

SPECIALIZATION PRODUCING ACCORDING TO COMPARATIVE ADVANTAGE WHOEVER HAS THE COMPARATIVE ADVANTAGE SHOULD SPECIALIZE IN THAT PRODUCT AND TRADE FOR THE OTHER.

EXAMPLE… THE PLAYERS: MARVEL UNIVERSE AND D.C. UNIVERSE THE STUFF: COMIC BOOKS AND VIDEOGAMES MARVEL CAN PRODUCE:30 CBOR10 VG D.C. CAN PRODUCE40 CBOR40 VG

MarvelD.C. 30 CB or 10 VG 40 CB or 40 VG 1 st. Put the Production Possibilities in the chart. A.A. CB A.A. VG 2 nd Determine Absolute Advantage 3 rd Determine Comparative Advantage 1VG = 1 VG 1CB = 1/3 VG 1VG = 3 VG 1CB = 1 VG C.A. for CB (lower cost) C.A. for CB (lower cost)

MARVEL CAN PRODUCE:30 CBOR10 VG D.C. CAN PRODUCE40 CBOR40 VG ANSWER THE FOLLOWING QUESTIONS 1.WHO HAS ABSOLUTE ADVANTAGE IN COMIC BOOKS? 2.WHO HAS ABSOLUTE ADVANTAGE IN VIDEOGAMES? 3.WHO HAS COMPARATIVE ADVANTAGE IN COMIC BOOKS? 4.WHO HAS COMPARATIVE ADVANTAGE IN VIDEO GAMES? 5.WHO SHOULD PRODUCE COMIC BOOKS? 6.WHO SHOULD PRODUCE VIDEO GAMES? 7.WHAT SHOULD BE THE TERMS OF TRADE? ANSWER THE FOLLOWING QUESTIONS 1.WHO HAS ABSOLUTE ADVANTAGE IN COMIC BOOKS? D.C. 2.WHO HAS ABSOLUTE ADVANTAGE IN VIDEOGAMES? D.C. 3.WHO HAS COMPARATIVE ADVANTAGE IN COMIC BOOKS? MARVEL 4.WHO HAS COMPARATIVE ADVANTAGE IN VIDEO GAMES? D.C. 5.WHO SHOULD PRODUCE COMIC BOOKS? MARVEL 6.WHO SHOULD PRODUCE VIDEO GAMES? D.C. 7.WHAT SHOULD BE THE TERMS OF TRADE? 2 GAMES FOR 3 BOOKS