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Specialization & Comparative Advantage Comparative Advantage.

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Presentation on theme: "Specialization & Comparative Advantage Comparative Advantage."— Presentation transcript:

1 Specialization & Comparative Advantage Comparative Advantage

2 Specialization & Comparative Advantage COMPARATIVE ADVANTAGE Assumptions: Two Nations Two Different Goods Constant Opportunity Costs Straight Line PPCs Different PPCs Technology Resources Costs

3 Specialization & Comparative Advantage Input vs. Output Absolute Advantage Comparative Advantage Specialization Gains from Trade COMPARATIVE ADVANTAGE Graphically...

4 Specialization & Comparative Advantage PRODUCTION POSSIBILITIES Coffee (tons) 45 40 35 30 25 20 15 10 5 0 30 25 20 15 10 5 0 5 10 15 20 25 30 5 10 15 20 Wheat (tons) Curve For Each Country United StatesBrazil

5 Specialization & Comparative Advantage Total output will be greatest when each good is produced by the nation that has the lowest opportunity cost for that good. Principle of Comparative Advantage PRODUCTION POSSIBILITIES

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