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Comparative and Absolute Advantage

Comparative and Absolute Advantage. 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.

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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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