1. Ch. 4.3 How do People and Nations Benefit from Specialization & Trade?

2. Key Terms
Define #8-11
#6-7 will be defined in notes

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

4. Absolute Advantage
Example: Joe owns his boat, grew up working on his father’s boat, and has 12 hours a day to fish. He has absolute advantage over the other fisherman in his town who have less experience, rent their boats, and only have 8 hours a day to fish.

5. ABSOLUTE ADVANTAGE Absolute Advantage in Production Possibilities
Who has the absolute advantage in bananas and cell phones?
Bananas
Cell Phones
Total
Guatemala
500 50
550
China 75
575

6. 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.
Example: Joe can fish and make $20/hour in profit, or he can charter
his boat for fishing trips and make
$40/hour. He has the comparative advantage in chartering.

7. Comparative Advantage
Example: Joe can fish and make $20/hour in profit, or he can charter his boat for fishing trips and make $40/hour. He has the comparative advantage in chartering.

8. Comparative ADVANTAGE
Comparative Advantage in Production Possibilities
Who has the comparative advantage in bananas?
Cell phones?
Bananas
Cell Phones
Total
Guatemala
500 50
550
China 75
575

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

10. WHO DOES Specialization Benefit?
Specialization benefits both sides of the
voluntary exchange.

11. WHO DOES Specialization Benefit?
Both sides use their resources to their
comparative advantage.

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

13. Absolute advantage & comparative advantage worksheet
Go to Flipchart.
Get out a half sheet of paper for the exit ticket.

14. Absolute Advantage

15. Comparative Advantage

16. EXIT TICKET Writing Prompt
“Free trade is good for America.”
Write two sentences in support of this statement.
Then write one or two sentences that refute it.