1. DO NOW WELCOME BACK & HAPPY NEW YEAR!!!!! Pick up handouts from table.
3B ONLY—CROSS OUT the WARM-UP section of Cornells.

2. Absolute & Comparative Advantage
ESSENTIAL QUESTIONS:
What are the costs and benefits of global trade and globalization?
How do countries seek to maximize the benefits from international trade?

3. Absolute & Comparative Advantage
OBJECTIVES:
4.1 Distinguish the difference between absolute and comparative advantage.
4.2 Describe the relationship between specialization and comparative advantage.
LEARNING TARGET:
I can distinguish between absolute and comparative advantage.
I will show I understand by completing a practice worksheet comparing two economies.

4. WARM-UP: Absolute & Comparative Advantage
Imagine you’re the manager of a fast food restaurant. You’re outgoing and interact well with the customers, and you’re proficient with the cash register. You’re also efficient in the kitchen and a good “multi-tasker.” You have one employee who is slow in the kitchen and struggles to cook while filling drink orders. They work the cash register well, but doesn’t interact much with the customers.

5. WARM-UP: Absolute & Comparative Advantage
What is your opportunity cost if YOU work the register?
What is your opportunity cost if YOU work in the kitchen?
Based on your opportunity cost, where will YOU work? Why?
Where will you place your employee? Why?

6. Absolute Advantage
The condition that exists when someone can produce a good or service using fewer resources than someone else.

7. Economist associated with Absolute Advantage
Adam Smith believed countries should look at their absolute advantage when deciding what to specialize in.

8. ABSOLUTE ADVANTAGE Guatemala China
Absolute Advantage in Production Possibilities
Who has the absolute advantage in bananas?
Cell phones?
Bananas
Cell Phones
Guatemala
500 50
China 75
Guatemala
China

9. Comparative Advantage
The condition that exists when someone can produce a good or service at a lower opportunity cost than someone else.
Remember, Opportunity cost is the value of what you give up to do something else instead.

10. Economist associated with comparative Advantage
David Ricardo believed countries should look at their comparative advantage (which goods have a lower opp. cost) when deciding what to specialize in.

11. Opportunity costs & Comparative ADVANTAGE
Opportunity costs of BANANA production
How many cell phones does Guatemala give up (opp. cost) to produce a banana?
How many cell phones does China give up (opp. cost) to make a banana?
Who has the comparative advantage in bananas?
Bananas
Cell Phones
Guatemala
500 50
China 75
1 b = 1/10 cell phone
1 b = 6.7 cell phones
50 / 500
1 / 10
1/10 cell phone
500 / 75
100 / 15
6.7 cellphones
Guatemala

12. Opportunity costs & Comparative ADVANTAGE
Opportunity costs of CELL PHONE production:
How many bananas does Guatemala give up (opp. cost) to make a cell phone?
How many bananas does China give up (opp. cost) to make a cell phone?
Who has the comparative advantage in cell phones?
Bananas
Cell Phones
Guatemala
500 50
China 75
1 CP = 10 bananas
1 CP = 3/20 of a banana
500 / 50
100 / 10
10 bananas
75 / 500
15/100
3/20 of a banana
China

13. VIDEO CLIPS
A little Gilligan’s Island Now, to explain absolute & context… comparative advantage…

14. factors that give rise to comparative advantage
Climate
Natural resources
Education
Wage levels
Technological differences

15. “Trade makes people better off…”
WHO DOES Specialization Benefit?
Specialization benefits both sides of the
voluntary exchange.
“Trade makes people better off…”

16. WHO DOES Specialization Benefit?
Both sides use their resources to their
comparative advantage.
Who has the comparative
advantage in
cell phones?
jeans?

17. QUICK CHECK Helen Helen
Production
per day
Quilts
Dresses
Helen 4 16
Jane 2 10
Who has the absolute advantage in making DRESSES?
Who has the absolute advantage in making QUILTS?
Helen
Helen

18. QUICK CHECK
Production per day
Quilts
Dresses
Helen 4 16
Jane 2 10
Opportunity cost for making 1 dress…
HELEN’S
JANE’S
Opportunity cost for making 1 quilt…
Who has the comparative advantage for quilts?
4 quilts for 16 dresses = 1 quilt for 4 dresses
To make 1 dress, Helen gives up making 1/4 of a quilt
2 quilts : 10 dresses = 1 quilt : 5 dresses
To make 1 dress, Jane gives up making 1/5 of a quilt
16 dresses : 4 quilts = 4 dresses : 1 quilt
To make 1 quilt, Helen gives up making 4 dresses
10 dresses : 2 quilts = 5 dresses : 1 quilt
To make 1 quilt, Jane gives up making 5 dresses