1. Comparative and Absolute Advantage

2. Where does your “stuff” come from?
1. Look around the room at the clothes people are wearing
2. Make a list of where they were made.
What do you notice?

3. Why Trade?
Countries have an UNEQUAL distribution of resources, so must trade in order to get everything they want/need.
Some unequal distribution is caused naturally, some by government policies & historical patterns.

4. Trade and Specialization
Specialization -producers (individuals or nations) decide to only produce certain goods
Example = US produces wheat & soybeans, but doesn’t mass produce diamonds or coffee
Costa Rica specializes in producing coffee, sells the coffee & buys other things that it needs.
Better for countries to specialize in products & then engage in trade.
 World economy more efficient w/each country producing whatever requires the least sacrifice. Vcs

5. How to make everyone happy? See who has the COMPARATIVE ADVANTAGE
Absolute Advantage:
Ability to produce more units of a good or service than some other producer using same quantity of resources.
Comparative Advantage:
Ability to produce a good or service at a lower opportunity cost than another producer
If individuals & countries specialize in producing goods in which they have comparative advantage & trade for goods in which the other has comparative advantage both parties will be better off.

6. KEY TAKEAWAY:
Every country, no matter how advanced/behind in productivity of its labor compared to others, is able to engage in beneficial trade
A country w/ productivity advantage over others wouldn’t export everything, but only those goods in which it had a comparative advantage.
An advanced country would find it advantageous to import goods even if it could produce those goods more efficiently than other countries.
Countries behind tech frontier w/out ‘absolute’ productivity advantage in anything could still export goods in which comparative disadvantage was the least

7. Should LeBron James Mow His Own Lawn?

8. Lawyer & Secretary