1. International Trade

2. Scenario 1  You are starting a bakery with a partner  It takes you 1 hour to make 80 muffins and 1 hour to make 20 cookies  Your partner takes 1 hour to make 20 muffins and 1 hour to make 80 cookies

3. Absolute Advantage  Ability of a particular person or a country to produce a particular good with fewer resources than another person or country  Ability of a particular person or country to produce more goods given the same resources

4. Absolute Advantage Muffins Cookies Cookies You(2hrs) 80 units (1 hr) 20 units (1 hr) Your partner (2 hrs) 20 units (1 hr) 80 units (1 hr) Total Output: 200 Units

5. Absolute Advantage Total Output: 320 units Muffins Cookies Cookies You(2hrs) 160 units (2hrs)0 Your partner (2 hrs) 160 units (2hrs)

6. Scenario 2  It takes you 2 hours to write up the whole section on Obama’s stimulus plan and 2 hours to write up on the whole section on1929 New Deal  It takes your partner 3 hour to write up on Obama’s stimulus plan and 2.5 hours to write up on the 1929 New Deal

7. Comparative Advantage  ability to produce a particular good at a lower opportunity cost  The producer who gives up less of other goods to produce good X has the smaller opportunity cost ; thus, he is said to have a comparative advantage

8.  If someone is able and willing to provide you with a product at a lower cost than you can provide for yourself, it make sense to trade for it

9. Comparative Advantage  Given up/Gain

10. Comparative Advantage Country Obama Stimulus 1929 New Deal You Your partner Choose the one with the smaller number

11. Comparative Advantage Country Obama Stimulus 1929 New Deal You 2/2 = 1 Your partner 3/2.5= 1.2 2.5/3 = 0.83 Choosing the one with the smaller number. Your partner Should work on the New Deal and you should work on Obama

12. Another Scenario: Comparative Advantage CountryChairsTables Country A (In one day) 200 units Country B (In one day) 30 units 90 units Total Output: 230 Units290 Units = 520 units

13. Comparative Advantage CountryChairsTables Country A (In one day) 200/200 = 1 Country B (In one day) 90/30 = 3 30/90 = 0.33

14. Comparative Advantage CountryChairsTables Country A (In one day) 400 units 0 units Country B (In one day) 0 units 180 units Total Output: 400 Units180 Units = 580 units

15. Reason For Trade  Production requires the use of resources are either not available or too costly to produce in one’s own country

16. Reason For Trade  For example: Ghana can produce bananas more cheaply Ghana can produce bananas more cheaply Germany can produce cars more cheaply Germany can produce cars more cheaply It’s possible, but very expensive, for Ghana to produce cars and Germany to produce bananas It’s possible, but very expensive, for Ghana to produce cars and Germany to produce bananas So: Germany should buy bananas from Ghana and Ghana should buy cars from Germany So: Germany should buy bananas from Ghana and Ghana should buy cars from Germany

17. Reason For Trade  Specialization of production of goods = More efficient production of goods

18.  Three main factors determine what products a country exports and imports resources resources market size market size climate climate

19. Economic Growth  Occurs when the production of goods and services increases  Increasing export is one way to enhance a country’s balance of trade and balance of payments and therefore, GDP