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Comparative and Absolute Advantage

This article explores the concepts of comparative and absolute advantage, which determine how countries decide what to produce. Absolute advantage refers to the ability to produce more of a good with the same resources, as illustrated by Dr. Cryder and Tyler's productivity in creating graphs and charts. Comparative advantage focuses on opportunity cost, highlighting who gives up less to produce items like Production Possibility Curves (PPCs). Additionally, the article discusses trade restrictions, the impact of tariffs, and outsourcing practices that influence economic decisions.

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Comparative and Absolute Advantage

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  1. Comparative and Absolute Advantage

  2. How do countries decide what to produce? • Absolute Advantage-The ability to produce more of an item with the same resources. Example: Dr. Cryder can complete 10 aggregate supply and demand charts in 10 minutes. Tyler can complete 2. Dr. Cryder has the absolute advantage.

  3. Comparative Advantage Looks at opportunity cost: what is being given up in order to produce an item. Who gives up less? Dr. Cryder can make 10 graphs or 5 Production Possibility Curves in 10 minutes. Tyler can make 2 graphs or 3 PPCs in 10 minutes.

  4. Dr. Cryder can make 10 graphs or 5 Production Possibility Curves in 10 minutes.Tyler can make 2 graphs or 3 PPCs in 10 minutes • Why does Tyler have the comparative advantage for PPCs? Why should he make PPCs?

  5. TRADE RESTRICTIONS • Surfboard video. What could the US do to help this company? http://www.pbs.org/newshour/bb/business/jan-june13/surfers_03-21.html Should a tariff be imposed?

  6. Think what this means... • With an average tariff of 40 percent, if you buy a foreign car for $15,000, say, it would actually cost you $21,000; a $10 string of Christmas tree lights would cost $14. At a 3.3 percent tariff, they would cost about $15,500 and $10.33 respectively.

  7. TO RECAP… • Tariffs are taxes placed on imports. Proponents say it makes prices more fair to American companies who have to pay higher labor costs. • Proponents of free trade say that fewer tariffs make products cheaper for everyone and increase the standard of living.

  8. Outsourcing • On the other hand, sometimes companies send parts of their company out of the country in order to save money. • Labor costs are cheaper • Fewer environmental concerns.

  9. Outsourcing • Even the surf company has some boards made in China and ships them back to the US

  10. Outsourcing • The Onion Clips • Homework – read the article and be ready to have a Socratic Discussion. Those who are not ready will have a writing assignment.

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