Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys

Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Intro to Economics

Comparative Advantage

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Intro to Economics

Absolute advantage. If someone can do a task using fewer resources than anyone else. Chapter Objectives Economic Perspective Even if someone has an absolute Theories Principles and advantage in everything (US can do most Models Macro and things better for example) still have an Microeconomics Individuals incentive to trade because time Economizing Problem constraints. Societys Economizing Problem Countries, people specialize in what their Production Possibilities Model best at doing. Unemployment, Growth, and the Future Comparative advantage. A person has the Last Word lowest opportunity costs of doing a task. Specialize in what you have a comparative advantage in doing.
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Economic Basis for Trade

Economic Basis for Trade

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Intro to Economics

Toms Possibilities Meals vs Lbs of Laundry in one day Laundry 10 9 8 7 6 5 Meals 0 1 2 3 4 5

Marys Possibilities Meals vs Lbs of Laundry in one day Laundry Meals

1
4/5 3/5 2/5 1/5 0

0
1 2 3 4 5

4
3 2

6
7 8

1
0

9
10

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Economic Basis for Trade

Time Constraint: 1 days production
Tom
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Mary 5 1

Intro to Economics

Max Number of Meals Cooked Max Pounds of Laundry cleaned

10 10

Step 1. Find the Absolute Advantage

Absolute Advantage Meals Cooked Pounds of Laundry cleaned Tom Tom

Step 2. Find the opportunity costs

Opportunity cost of 1 Meal Cooked 1 Pounds of Laundry cleaned Tom
(10/10) =1 lb laundry (10/10) = 1 meal cooked

Mary
(1/5)lb laundry (5/1) = 5 meals cooked

Step 3. Find the Comparative Advantage

Comparative Advantage Meals Cooked Pounds of Laundry cleaned Mary Tom

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Economic Basis for Trade

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Intro to Economics

If Mary gives up doing a lb of laundry she can add 5 meals. If Tom adds a pound of laundry he has to give up 1 meal. Production rises from specialization. In this case laundry stayed the same and meals went up by 4.

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