A person has a comparative advantage at producing a product if they can produce it at a lower cost...
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Transcript of A person has a comparative advantage at producing a product if they can produce it at a lower cost...
Comparative and Absolute Advantage
Unit: Trade In Economics
Comparative Advantage A person has a comparative advantage at
producing a product if they can produce it at a lower cost than others.
Everyone has a comparative advantage at something.
This is true because “lower cost” means the opportunity cost of producing something.
Absolute Advantage A person is the best at producing
something. Just because someone has an absolute
advantage it does not mean they have a comparative advantage.
Remember opportunity cost.
Guiding Thought:
“To find people’s comparative advantages, do not compare their absolute advantages. Compare their opportunity costs.”
Example One Jim can make 5 sales in a day. He can also type 10 memos
in one day. Pam can make 1 sale in a day. She can also type 25
memos in one day. Who has the Absolute advantage in sales? Comparative?
Why? Who has the Absolute advantage in typing memos?
Comparative? Why?
Example Two Megan can make 8 dresses in a week. She can
also make 5 pairs of pants in a week. Allison can make 5 dresses in a week. She can
also make 3 pairs of pants in a week. Who has the Absolute advantage in dresses?
Comparative? Why? Who has the Absolute advantage in pants?
Comparative? Why?
Welcome to Wellman Village Population: 30
Established: 2012 Businesses: 10 Goal: Have the best run businesses in the United
States.
Simulation Activity
Each student will get a certain card containing details about what they can produce at certain costs/ time constraints.
Each student will get into groups of three to make the best business.
At the end, the class should have a small town with well run businesses.
Writing Assignment
Typed or Hand Written 1 Paragraph Essay Prompt: Think of a time when
comparative and absolute advantage was used to establish who would do what in your life. Explain how the situation fits.