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Comparative Advantage

Comparative Advantage. COMPARATIVE ADVANTAGE. Assumptions: Two Nations Two Different Goods Constant Opportunity Costs Straight Line PPCs Different PPCs Technology Resources Costs. COMPARATIVE ADVANTAGE. Input vs. Output Absolute Advantage Comparative Advantage Specialization

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Comparative Advantage

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  1. Comparative Advantage

  2. COMPARATIVE ADVANTAGE • Assumptions: • Two Nations • Two Different Goods • Constant Opportunity Costs • Straight Line PPCs • Different PPCs • Technology • Resources • Costs

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

  4. United States Brazil 45 40 35 30 25 20 15 10 5 0 30 25 20 15 10 5 0 Coffee (tons) Coffee (tons) 5 10 15 20 25 30 5 10 15 20 Wheat (tons) Wheat (tons) PRODUCTION POSSIBILITIES Curve For Each Country

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

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