ch. 4.3 how do people and nations benefit from specialization & trade?
TRANSCRIPT
CH. 4.3
HOW DO PEOPLE AND NATIONS BENEFIT FROM SPECIALIZATION &
TRADE?
KEY TERMS•Define #8-11•#6-7 will be defined in notes
ABSOLUTE ADVANTAGE
The condition that exists when someone can produce a good or service using fewer resources than someone else.
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.
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 75 500 575
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 charterhis boat for fishing trips and make$40/hour. He has the comparative advantage in chartering.
COMPARATIVE ADVANTAGE
Example: Joe can fish and make $20/hour in profit, or he can charterhis boat for fishing trips and make$40/hour. He has the comparative advantage in chartering.
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 75 500 575
VIDEO CLIPSA little Gilligan’s Island Now, to explain absolute & context… comparative advantage…
WHO DOES SPECIALIZATION BENEFIT?
Specialization benefits both sides of the
voluntary exchange.
WHO DOES SPECIALIZATION BENEFIT?
Both sides use their resources to their comparative advantage.
FACTORS THAT GIVE RISE TO COMPARATIVE ADVANTAGE
• Climate• Natural resources• Education• Wage levels• Technological differences
ABSOLUTE ADVANTAGE & COMPARATIVE ADVANTAGE WORKSHEET
•Go to Flipchart.
•Get out a half sheet of paper for the exit ticket.
ABSOLUTE ADVANTAGE
COMPARATIVE ADVANTAGE
EXIT TICKETWRITING PROMPT
“Free trade is good for America.”
•Write two sentences in support of this statement.•Then write one or two sentences that refute it.•