1. Absolute and Comparative Advantage Mrs. Raphaels

2. Practice Problem Units of output in a given day Wheat (in bushels)Cloth (in yards) Portugal1020 England2060 What’s the difference between these two types of problems? Labor Hours Needed to Produce a Unit of: WheatCloth Portugal1020 England2060 1. 2.

3. Practice Problem Units of output in a given day Wheat (in bushels)Cloth (in yards) Portugal1020 England2060 Problem 1 is an OUTPUT problem Problem 2 is an INPUT problem Calculation must be different! Labor Hours Needed to Produce a Unit of: WheatCloth Portugal1020 England2060 1. 2.

4. Inputs Outputs  Time  Minutes  Hours  Days  Years  Raw materials  Units of input needed  Land  Acres  Bushels  Pounds  Number of items produced

5. Practice Problem Units of output in a given day Wheat (in bushels)Cloth (in yards) Portugal1020 England2060 OUTPUT method: “ OOO ” O utput problem: O ther goes O ver What is Portugal’s opportunity cost of producing wheat? 20 yards of cloth 2. 10 bushels of wheat 1 What is England’s opportunity cost of producing wheat? 60 yards of cloth 6. 20 bushels of wheat 2 1. = = 2 yards of cloth = = 3 yards of cloth

6. Practice Problem INPUT method: “ IOU ” I nput problem: O ther goes U nder What is Portugal’s opportunity cost of producing wheat? 10 hrs producing wheat = 10 1 1 20 hrs you could use to produce cloth 2 What is England’s opportunity cost of producing wheat? 20 hrs producing wheat = 20 1 1 60 hrs you could use to produce cloth 3 1. = Labor Hours Needed to Produce a Unit of: WheatCloth Portugal1020 England2060 cloth =

7. Absolute and Comparative Advantage  Things to keep in mind:  The person/country with an absolute advantage can do more  The person/country with a comparative advantage has a LOWER OPPORTUNITY COST!!!!  Even if one person/country has an absolute advantage in the production of both goods – you can ALWAYS benefit if there is a comparative advantage between countries