comparative advantage and trade why do economies trade?
TRANSCRIPT
Comparative Advantage and Trade
Why do economies trade?
Graph the Following PPC
Packs of Gum Chocolate Bars0 125 8
10 415 0
Answer the Following:
1. What is the slope of the curve?
2. What is the opportunity cost of producing a pack of gum?
3. What is the opportunity cost of producing a chocolate bar?
4. Calculate the area under the curve.
Packs of Gum
ChocolateBars
0
12
15
Production Possibilities Curve
PPC
Answer the Following:
1. What is the slope of the curve?
2. What is the opportunity cost of producing a pack of gum?
3. What is the opportunity cost of producing a chocolate bar?
4. Calculate the area under the curve.
-4/5
-4/5 of a chocolate bar
-1.25 packs of gum
90 units
Plot the following PPC on the same graph
Packs of Gum Chocolate Bars0 102 54 0
Packs of Gum
ChocolateBars
0
12
15
Production Possibilities Curve
PPCA
10
4
PPCB
Who has absolute advantage?
Country Gum ChocolateA 15 12B 4 10
Which country can make more?
Country A has absolute advantage in both gum and chocolate
Who has comparative advantage?
Country Gum ChocolateA -4/5 chocolate -5/4 gumB - 5/2 chocolate -2/5 gum
How do the opportunity costs compare for both countries?
Country A has comparative advantage in gumCountry B has comparative advantage in chocolate
Work Together…
State Apples TimberOregon 10 40
Washington 40 10
1. Draw the PPCs for both states2. Who has absolute advantage?3. Who has comparative advantage?4. What happens to production and consumption
when Oregon and Washington trade 20 apples for 20 timber?
Values represent all resources spent on one good(the other value is 0)