1. Comparative and Absolute Advantage
Terms of Trade
Comparative and Absolute Advantage

2. Opportunity Cost – the value of the item you give up when a choice is made, the 2nd best alternative
Absolute Advantage – the ability to produce more than another, given similar resources and technology
Comparative Advantage – having a lower opportunity cost than another producer, therefore you can produce more and benefits to trade exist

3. Production Possibilities Frontier Graphs demonstrate opportunity Costs and comparative advantage

4. Fish oc Coconuts oc
CPC
PPC

5. Radios Opportunity Cameras opportunity Japan 2 _____ 4 ______
Practice:
Radios Opportunity Cameras opportunity
cost cost
Japan _____ ______
South Korea _____ ______
Absolute advantage in Radios?
Comparative advantage in Radios? Cameras?
Opportunity cost of Japan producing Cameras?

6. Radios Opportunity Cameras opportunity Japan 2 _____ 4 ______
cost cost
Japan _____ ______
South Korea _____ ______
Absolute advantage in Radios?
Comparative advantage in Radios? Cameras?
Opportunity cost of Japan producing Cameras?

7. Radios Opportunity Cameras opportunity Japan 2 _____ 4 ______
cost cost
Japan _____ ______
South Korea _____ ______
Absolute advantage in Radios?
Comparative advantage in Radios? Cameras?
Opportunity cost of Japan producing Cameras?

8. Dairy Opportunity Watches opportunity
cost cost
Country A _____ _____ ______ ______
Country B _____ _____ ______ ______
The opportunity cost of making watches is lower in country ? ____
The opportunity cost of making dairy is lower in country ? ____
So country B should specialize in ______ and let county A produce __________
The terms of trade would be somewhere between _____ and _____ pounds of dairy products for 1 watch.

9. Soybeans Opportunity Rice opportunity USA 5 _____ 7 ______
cost cost
USA _____ ______
Japan _____ ______
Absolute advantage in soybeans? Rice?
Comparative advantage in Soybeans? Rice?
Opportunity cost of USA producing Soybeans?