US – What Are We Good At?

US – What Are We Good At?America's Leading Exports(in billions of dollars)

1 Civilian Aircraft 74

2 Semiconductors 50.6

3 Cars 49.6

4 Pharmaceutical Preparations 40

5 Car Accessories 39.9

http://www.google.com/url?sa=i&rct=j&q=car%20accessories&source=images&cd=&cad=rja&docid=NENK6isGeJ0sMM&tbnid=_temUf861vVwSM:&ved=0CAUQjRw&url=http://www.texasonlineauto.com/tag/auto-accessories&ei=F3AfUqSjGsOWrAG92YDYBA&bvm=bv.51495398,d.aWM&psig=AFQjCNG4wEkGLwSwbC5p3neOsZaC6OqkOQ&ust=1377878413100838

What Are Other Countries Good At?

http://www.google.com/url?sa=i&rct=j&q=car%20accessories&source=images&cd=&cad=rja&docid=NENK6isGeJ0sMM&tbnid=_temUf861vVwSM:&ved=0CAUQjRw&url=http://www.texasonlineauto.com/tag/auto-accessories&ei=F3AfUqSjGsOWrAG92YDYBA&bvm=bv.51495398,d.aWM&psig=AFQjCNG4wEkGLwSwbC5p3neOsZaC6OqkOQ&ust=1377878413100838

http://www.google.com/url?sa=i&rct=j&q=bananas%20ecuador&source=images&cd=&cad=rja&docid=k7wDWmcul09hhM&tbnid=Jetcf0t6MvEBHM:&ved=0CAUQjRw&url=http://www.life-in-ecuador.com/ecuador-facts.html&ei=GHEfUs3nCMXerQHF7oCIBA&bvm=bv.51495398,d.aWM&psig=AFQjCNGbJFIBBeLNZjwu2FEz9dNfj2sCLA&ust=1377878652162431

http://www.google.com/url?sa=i&rct=j&q=bell+pepper+mexico&source=images&cd=&cad=rja&docid=-Br2Z2YzAaZo6M&tbnid=XI-vkSAPS1aZRM:&ved=0CAUQjRw&url=http://www.groceryheadquarters.com/2012/11/baloian-farms-adds-mexican-hothouse-program/&ei=2HIfUvWFJNKDrQGn1YCwCg&bvm=bv.51495398,d.aWM&psig=AFQjCNFkNB7vy2mBxXFozE5oKbgBtbN43g&ust=1377879057894716

Absolute Advantage – person or nation can produce more of a given product using a given amount of resourcesComparative Advantage – the ability to produce a product with less opportunity costLaw of comparative advantage – a nation is better off when it produces goods and services for which it has a comparative advantage

or

Chapter 3 – Interdependence and the Gains from Trade

http://www.google.com/url?sa=i&rct=j&q=bananas%20ecuador&source=images&cd=&cad=rja&docid=k7wDWmcul09hhM&tbnid=Jetcf0t6MvEBHM:&ved=0CAUQjRw&url=http://www.life-in-ecuador.com/ecuador-facts.html&ei=GHEfUs3nCMXerQHF7oCIBA&bvm=bv.51495398,d.aWM&psig=AFQjCNGbJFIBBeLNZjwu2FEz9dNfj2sCLA&ust=1377878652162431

Output – final good or service, maximum amount that can be produced“How much is produced”Ex. China manufactured 2 million Iphones last year

Input – resources "put in" to the economy that will help to produce an output; shows the number of resources required to produce a specific amount

“How much is necessary to produce”Land, Labor, Capital (F.O.P.)Ex. It takes China 1 hour to produce 1 Iphone, it takes 6 workers, it takes 2 factories, etc.

Output vs. Input

1. The United States manufactured 2000 airplane engines last year ___________________

2. It takes the average worker 3 hours to produce a textile in China __________________

3. Saudi Arabia can produce up to 11 million barrels of crude oil per day ________________

4. It takes 1 machine to cultivate a farm (it used to take 10 people) __________________

5. McDonalds requires 2 acres of property to build a restaurant ______________________

6. McDonalds has the capability of producing 8500 burgers per minute ________________

7. It takes 2 hours and four workers to unload a truck at Wal-Mart ____________________

8. The United States produced 2000 tons of soybeans last year ____________________

Output vs. Input outputinputoutputinputinputoutputinput

output

Two men live alone on an isolated island. To survive they must undertake a few basic economic activities like water carrying, fishing, cooking and shelter construction and maintenance. The first man is young, the second man is old. The younger man can gather 60 coconuts every hour, or catch 20 fish. While the older man can only gather 20 coconuts or catch 10 fish every hour.

Activator Chapter 3 – Interdependence and the Gains from Trade

ProductivityCoconuts Fish

Young Man 60 20Old Man 20 10

Coconuts or Fish? Output Question

ProductivityCoconuts Fish


Coconuts or Fish? Output Question

Young Man has absolute advantage because he can produce both items more efficiently than the old man

Comparative AdvantageCoconuts Fish


OGO – “Other Goes Over” method shows the opportunity cost of productionPer Unit Opportunity CostTotal Cost/Total Production

10/20 = 1/2 F

60/20 = 3 C

20/60 = 1/3 F

20/10 = 2 C

Output Method

Young Man1 Coconut = 1/3 Fish1 Fish = 3 Coconut

Old Man1 Coconut = 1/2 Fish1 Fish = 2 Coconut

=

=

=

=

Young Man has comparative advantage in collecting coconuts because he gives up less fish relative to his production of coconuts than the old man

His opportunity cost for collecting coconuts is lower relative to the old man

The old man has the comparative advantage in catching fish because he gives up less coconuts relative to his production of fish

His opportunity cost for catching fish is lowerImportant Note: the only time two people/nations/firms will not trade is if there is no comparative advantage, opportunity cost is the same.

Output MethodComparative AdvantageCoconuts Fish

Young Man 60 20Old Man 20 1010/20 = 1/2 F

60/20 = 3 C

20/60 = 1/3 F

20/10 = 2 C

Productivity1 Coconuts 1 Fish

Young Man 1 hr. 2 hrs.Old Man 3 hrs. 12 hrs.


Coconuts or Fish? Input Question

Absolute Advantage1 Coconuts 1 Fish



Coconuts or Fish? Input Question



1/2 2/1 = 2 3/12 = 1/4

12/3 = 4

IOU – “Input - Other Goes Under” method shows the opportunity cost of productionTotal Production/Total Cost

Input Method

Determining Comparative Advantage

Scenario: Canada and Mexico are considering the trade of two goods. Canada can produce 100 Furs or 100 trees. Mexico can produce 50 furs or 200 trees.

Productivity

Fur TreesCanada Mexico

100/100

200/50

100/10050/200

= 1 T

= 4 T

= 1 F= 1/4 F

• It costs Canada ______ fur for every tree it produces.• It costs Mexico ______ fur for every tree it produces.• It costs Canada ______ tree for every fur it produces.• It costs Mexico ______ tree for every fur it produces.

11/4 1 4

• Therefore, Canada should specialize in the production of Fur, while Mexico should specialize in the production of trees

100 10020050

China has comparative advantage in car productionUS has a comparative advantage in Cheese production

Determining Comparative AdvantageHours per Car/Cheese1 Car 1 Ton of Cheese

US 15 5China 4 2

15/5 = 3 CH

5/15 = 1/3 CAR 4/2 = 2

CH 2/4 = 1/2 CAR

Kate and Carl

1. It costs Kate ________ birdhouses to produce 1 t-shirt.2. It costs Kate ________ shirts to produce 1 birdhouse.3. It costs Carl ________ to produce 1 t-shirt.4. It costs Carl ________to produce 1 birdhouse.5. ________ has a comparative advantage when producing t-shirts.6. ________ has a comparative advantage when producing birdhouses.7. Therefore, ___________ should produce t-shirts and __________

should produce birdhouses.

Productivity Per HourOpportunity cost of a T-Shirts

Opportunity cost of a Birdhouse

Kate 2/6 = _____ birdhouse

6/2 = ______ t-shirt

Carl 1/1 = _____ birdhouse

1/1 = ______ t-shirt

1/3 3

1 1

1/3

3

1

1

Kate

Carl

Kate

Carl

Karateconomics

Absolute and Comparative Advantage Practice

Rice Beans

India 20 10

United Kingdom 5 15

• Which country enjoys an absolute advantage in beans? United Kingdom• Which country enjoys an absolute advantage in rice? India


Productive OutputRice Beans

India 20 10

United Kingdom 5 15

Who has the higher opportunity cost when producing Rice? UKWho has the higher opportunity cost when producing Beans? IndiaWho has comparative advantage when producing Beans? UKWho has comparative advantage when producing Rice? IndiaTherefore, India should specialize in the production of, Rice while the U.K. should specialize in the production of Beans

10/20 = 1/2 Beans 20/10 = 2 Rice

15/5 = 3 Beans 5/15 = 1/3 Rice


Productive OutputFish Vegetables

Country X 14 10

Country Y 14 15

Which of the following is true?a. Country Y has absolute advantage in producing both fish and

vegetables, but comparative advantage in fish.b. With trade, country X will import fish.c. Country Y has comparative advantage in producing fish.d. These countries will not be able to benefit from specialization and

trade.e. Country X will export fish to country Y.Answer: _____e________

10/14 = .71 Vegs 14/10 = 1.4 Fish

15/14 = 1.07 Vegs 14/15 = .93 Fish


Productive OutputGuns Butter

Russia 60 20

Cuba 30 10

• Which country enjoys an absolute advantage? Russia


Productive OutputGuns Butter

Russia 60 20

Cuba 30 10

9. For every Gun that Russia produces, they give up _____1/3________ Butter.10. For every Butter that Russia produces they give up ____3________ Guns.11. For every Gun that Cuba produces they give up ______1/3_____ Butter.12. For every Butter that Cuba produces they give up _____3_______ Guns.13. Why is there no comparative advantage? Opportunity Cost is the same14. Therefore, the two countries should not trade is when their opportunity cost

is__________equal/the same____________________

20/60 = 1/3 Butter 60/20 = 3 Guns

10/30 = 1/3 Butter 30/10 = 3 Guns


Cars Bikes

Italy 4 2

Morocco 5 1

• Which country enjoys an absolute advantage in cars? Italy• Which country enjoys an absolute advantage in bikes? Morocco


Cars Bikes

Italy 4 2

Morocco 5 1

• Who has the higher opportunity cost when producing cars? Morocco• Who has the higher opportunity cost when producing bikes? Italy• Who has the comparative advantage when producing cars? Italy • Who has the comparative advantage when producing bikes? Morocco• Therefore, Italy should specialize in the production of cars while Morocco should

specialize in the production of bikes

4/2 = 2 Bikes 2/4 = 1/2 Cars

5/1 = 5 Bikes 1/5 Cars

Daily Ten #1 - Shirts and Shoes

Article

Shirts

Shoes

Identify the country of origin for your shirts and shoes.

Should Tiger Woods Mow His Own Lawn?

How can people benefit from specialization and trade?

Tiger can mow his lawn in only two hours, but he can also make $10,000 in two hours

doing appearances.

Tiger has a neighbor, Forrest. It will take Forrest 4 hours to mow

Tiger’s lawn. Forrest could also spend those 4 hours working at McDonald’s

for $20 total.

Should Tiger mow his own lawn?

Tiger Tiger Woods Y’all!

What is each person’s Opportunity Cost of mowing Tiger’s lawn?

Lawn Work

Tiger 1 hour $10,000Forrest 4 hours $20

Who mows lawns the best?Who makes more money working?How can Tiger benefit from Forrest?

Specialization

http://www.google.com/url?sa=i&rct=j&q=rg3&source=images&cd=&cad=rja&docid=Aix-4k5R2ijptM&tbnid=3QFmmyHFs5coyM:&ved=0CAUQjRw&url=http://scores.espn.go.com/nfl/recap?gameId=321203028&ei=f1J1UbrVCJGy8ASjoICoBg&bvm=bv.45512109,d.eWU&psig=AFQjCNFMnR-tChbHXQ3X_Xf9HPBBv8RRgA&ust=1366729724406020

Terms of TradeTerms of trade – rate of exchange wherein both parties mutually benefitGains from Trade – refers to the net benefits to agents from voluntary trading with each other; the specific amount that each party benefits through trade


Young Man 60 20

Old Man 20 1010/20 = 1/2 F

60/20 = 3 C 20/60 = 1/3 F

20/10 = 2 C

or or

What Should be the Terms of Trade?

1 Fish for 2 ½ Coconuts More than 2

CoconutsLess than 3 Coconuts

Coconuts or Fish? Terms of Trade

1

1 2 3

YM

OM

Terms of Trade1 Fish for 2.5 Coconuts

YM: 1 Fish costs 3 CoconutOM: 1 Fish costs 2 Coconut

Fish

Coconuts



60/20 = 3 C

20/60 = 1/3 F

20/10 = 2 C

2.5

Coconuts or Fish? Terms of Trade

1

1/3 1/2 2/3 1YM

OM

Terms of Trade1 Coconut for .44 Fish

YM: 1 Coconut costs 1/3 FishOM: 1 Coconut costs 1/2 Fish

Coconuts

Fish



60/20 = 3 C

20/60 = 1/3 F

20/10 = 2 C

.44

Gains From Trade ExampleSlavia and Lebos are considering the trade of two goods, clothing and food. Slavia can produce 10 food or 10 clothing. Lebos can produce 3 Food or 9 Clothing.

ProductivityFood Clothing

SlaviaLebos

10/10 = 1 C 9/3 = 3 C

10/10 = 1 F3/9 = 1/3 F

•First, Input the data to determine who has a comparative advantage in production.

•Indicate Per Unit Opportunity Cost:

Slavia 1 F costs _______ C 1C costs _______F

Lebos 1 F cost _______ C 1C costs _______F

•Who has the comparative advantage in the production of food? _________________________________

•Who has the comparative advantage in the production of clothing? _________________________________

10 10

3 9

1 1

Slavia

Lebos

• Term of Trade• If Slavia wants to experience gains from trade then they must agree to trade 1 food for

_________ clothing.• If Lebos wants to experience gains from trade then they must agree to trade ________ clothing

for 1 food.

3 1/3

+1 >3

1

2 31

Food

Clothing

Slavia Lebos

Finding the Gains From Trade1. First, graph original production possibilities2. Then, graph the new points based on gains trade.

• Slavia and Lebos agree to trade at a rate of 1 food for 2 clothing (1F = 2C). • Slavia produces all food (10) and trades 1 food for 2 clothing. • Therefore ending up with 9 food and 2 clothing.• Lebos produces all clothing (9) and trades 2 clothing to Slavia for 1 food. • Therefore, Lebos ends up with 7 clothing and 1 food.

Food

0Clothing

Slavia

Gains from trade +1/3 Food

1 2 3 4 5 6 7 8 9 10

LebosFood

0

10

9

8

7

6

5

4

3

2

1

Clothing

1 2 3 4 5 6 7 8 9 10

10

9

8

7

6

5

4

3

2

1

Gains from trade +1 Clothing

Production Possibilities Before Trade

Production Possibilities After Trade

Application Question Comparative Advantage• Two people are academics who are paid for how many papers they produce. In one year

Jane can write 4 economics papers or 6 law papers. John can write 3 economics papers or 1 law paper. They need to figure out who should be the lawyer and who should be the economist.

• Create two graphs that summarize all the possible choices that they can produce. Then determine opportunity cost in the chart below

6

Eco

nom

ics

Pap

ers

0

4

10

3

Eco

nom

ics

Pap

ers

Productivity Per YearEconomics Papers Law Papers

Jane

4 6

John

3 1

Law PapersLaw Papers

6/4 = 1.5 LP 1/3 = .33 LP

4/6 = 2/3 EP3/1 = 3 EP

Jane John

Application Question Comparative Advantage• They end up producing a total of 9 papers, 6 law papers and 3 economics papers. They

decide to trade one law paper for one of economics papers; Jane ends up with 5 law papers and 1 economics paper while John can have 1 law paper and 2 economics papers

• Plot the new points on the respective PPFs.

5 6

Eco

nom

ics

Pap

ers

0

4

1

10

3

Eco

nom

ics

Pap

ers


Jane John

*Notice that they have broken through the constraints imposed by the scarcity of time. Both of these points lie outside the respective PPFs. John could not have written 1 law paper and 2 economics papers in a year because it takes him a year just to write the law paper. Jane could never have written 5 law papers and 1 economics papers in one year: it would have taken her 13 months to do so.*

Sample Free Response Question

1. The diagram above shows the production possibilities curves for two countries: Artland and Rayland. Using equal amounts of resources, Artland can produce 600 hats or 300 bicycles, whereas Rayland can produce 1,200 hats or 300 bicycles.•Calculate the opportunity cost of a bicycle in Artland.•If the two countries specialize and trade, which country will import bicycles? Explain.•If the terms of trade are 5 hats for 1 bicycle, would trade be advantageous for each of the following?

1.Artland2.Rayland

•If productivity in Artland triples, which country has the comparative advantage in the production of hats?

6 points (1 + 2 + 2 + 1)(a) 1 point:

1. One point is earned for stating that the opportunity cost of a bicycle in Artland is 600/300 = 2 hats.2. (b) 2 points:• One point is earned for stating that Rayland will import bicycles.• One point is earned for any one or more of the following explanations:

• Rayland has a comparative advantage in hats.• Rayland has a comparative disadvantage in bicycles.• Rayland has a lower opportunity cost in hats or higher opportunity cost in bicycles.• Artland has a comparative advantage in bicycles.• Artland has a comparative disadvantage in hats.• Artland has a lower opportunity cost in bicycles or a higher opportunity cost in hats.

3. (c) 2 points:• One point is earned for stating that it is advantageous for Artland.• One point is earned for stating that it is NOT advantageous for Rayland.

4. (d) 1 point:• One point is earned for stating that Rayland has a comparative advantage in producing hats.

Extra Credit Chapter 31. What is the difference

between absolute and comparative advantage?

2. Give an example of how in the “real-world” everyone benefits from trade

3. Explain your interpretation of the political cartoon:

1. Illustrator’s message

2. Clues (people, symbols etc.)

3. Do you agree or disagree?

Review Question Comparative Advantage• Two people are academics who are paid for how many papers they produce. In one year

Jane can write 4 economics papers or 6 law papers. John can write 3 economics papers or 1 law paper. They need to figure out who should be the lawyer and who should be the economist.

• Create two graphs that summarize all the possible choices that they can produce. Then determine opportunity cost in the chart below

Eco

nom

ics

Pap

ers

0 0E

cono

mic

s P

aper

s

Productivity Per YearEconomics Papers Law Papers

JaneJohn


Jane John

Two athletes Joe and Jim play on the same team football team. Joe is bigger, faster, and stronger than Jim. The coaches are trying to determine what positions to play Joe and Jim for the upcoming season. When Joe plays quarterback, he throws 20 td’s per season. When he plays receiver he scores 12. When Jim plays quarterback he throws 14 td’s. When he plays receiver he scores 5 td’s. Who should play what?Plug in the information to the table below.

Absolute and Comparative Advantage and Sports

QB WR

Joe 20 12

Jim 14 5

QB WR

Joe 12/20 = ____

20/12 = ____

Jim 5/14 = _____

14/5 = _____



QB WR

Joe 20 12

Jim 14 5

QB WR

Joe 12/20 = ____

20/12 = ____

Jim 5/14 = _____

14/5 = _____

QB WR

Joe 12/20 = 3/5 or 60%

20/12 = 5/3 or 1.6%

Jim 5/14 = 35% 14/5 = 2.8%



QB WR

Joe 20 12

Jim 14 5

QB WR

Joe 12/20 = ____

20/10 = ____

Jim 5/14 = _____

14/5 = _____

QB WR

Joe 12/20 = 3/5 or 60%

20/12 = 5/3 or 1.6%

Jim 5/14 = 35% 14/5 = 2.8%

Trade Barriers and AgreementsTrade Barrier – a trade restriction, used to prevent a foreign product from freely entering a nation’s territoryImport Quotas – a limit on the amount of a good that can be importedVoluntary Export Restraint – a self-imposed limitiation on the a number of products shipped to a particular countryTariffs – a tax on imported goods

International Cooperation and AgreementsInternational Free Trade Agreement – results from cooperation between countries to reduce trade barriers and tariffs to promote tradeNorth American Free Trade Agreement (NAFTA) – agreement between Canada, Mexico and the U.S. to eliminate tariffs and other trade barriersEuropean Union (EU) – a regional trade organization of European nationsWorld Trade Organization (WTO) – a worldwide organization whose goal is to promote free global trade

Measuring TradeExchange Rate – the value of one foreign nation’s currency in relation to another nation’s currencyDetermining the Rate of Exchange

1 Dollar = 12 Mexican PesosHotel room costs 500 Pesos per night 500/12 = $41.66

Due Monday 1-23

1. Comparative Advantage Article (Lance Armstrong, Martha Stewart)

2. Absolute and Comparative Practice

3. Homework - The Legacy of Adam Smith and David Ricardo, pg. 57

4. Homework - YouTube Video #34: Compartive Advantage and Trade

5. Homework - Should Tiger Woods Mow His Own Lawn, pg. 58

6. Homework - The Changing Face of International Trade, pg. 59

7. Chapter 3 Practice Review8. Free Response Questions9. Daily Tens (3)10. Notes Chapter 311. Terms Chapter 3

Specialization and TradeCarl

Specialization

Trade Net Effect

Carl Specializes, switching 2 hours from t-shirt production to birdhouse production

Carl trades 1 birdhouse for 2 t-shirts

Net effect is same number of t-shirts and 1 more birdhouse

Kate

Specialization

Trade Net Effect

Kate specializes, switching one half-hour from birdhouse production to t-shirt produciton

Kate trades 2 t-shirts for 1 birdhouse

Net effect is the same number of birdhouses and 1 more t-shirt

1.

a. Angela’s PPF

b. 2 mugs. 20 mugs.c. 1/2 pot. 5 potsd. Because Angela’s

productivity in pot and mug production is constant – it doesn’t depend on how many mugs or pots she is making. Therefore the opportunity cost of mugs in terms of pots is constant (and, of course, so is the opportunity cost of pots in terms of mugs).

c. 1/3 ton of grain. 3 computers.

d. 1 ton of grain. 1 computer.

e. Germany because one worker can produce 15 computers compared to 4. Germany because one worker can produce 5 tons of grain compared to 4.

f. Germany because a computer has the opportunity cost of only 1/3 ton of grain compared to 1 ton of grain in Poland. Poland because a ton of grain has the opportunity cost of only 1 computer compared to 3 computers in Germany.

g. Germany should produce computers while Poland should produce grain because the opportunity cost of computers is lower in Germany and the opportunity cost of grain is lower in Poland. That is, each has a comparative advantage in those goods.

h. Grain must cost less than 3 computers per ton to Germany. Computers must cost less than 1 ton of grain per computer to Poland.

b. United Statesc. Neither, the opportunity cost is the samed. No. Each can get the same trade-off between goods domestically.

Application Questions – pgs. 58 – 59 Should Tiger Woods Mow His Own Lawn?

1. What does Tiger Woods hold an absolute advantage in?2. What does Forrest Gump have a comparative

advantage in?3. What is the opportunity cost for both Tiger and Forrest

for mowing the lawn?4. Why are the gains from trade beneficial in this

scenario?Should The United States Trade With Other Countries?

1. Create a chart to show the production of cars and food in the U.S. and Japan.

2. What is the opportunity cost for both countries production of cars and food?

3. Who has a comparative advantage in the production of each?






1. Define imports and exports.2. Create a chart to show the production of cars and food

in the U.S. and Japan.3. What is the opportunity cost for both countries

production of cars and food?4. Who has a comparative advantage in the production of

each?Answer the question to the “Quick Quiz”

Productivity Per Month

Food Cars

U.S.

Japan

2 1/2 = ½ 1 2/1 = 2

1 1/1 = 1 1 1/1 = 1






1. Define imports and exports.2. Create a chart to show the production of cars and food

in the U.S. and Japan.3. What is the opportunity cost for both countries

production of cars and food?4. Who has a comparative advantage in the production of

each?

Productivity Per Month

Food Cars

U.S.

Japan

2 1/2 = ½ 1 2/1 = 2

1 1/1 = 1 1 1/1 = 1

Application Question Comparative Advantage• A Japanese worker can produce 6 units of steel or 3 televisions. A South Korean

worker can produce 8 units of steel or 2 televisions.

OutputSteel Televisions

Japan 6 3S. Korea

8 2

TVs

3/6 = 1/2 TV 2/8 = 1/4 TV

6/3 = 2 STL8/2 = 4 STL

1

2 3 4 5

Terms of Trade1TV = 3 Steel1 Steel = 1/3 TV

Steel

Japan1 Steel = 1/2 TV1 TV = 2 Steel

S. Korea1 Steel = 1/4 TV1 TV = 4 Steel Japan S. Korea

1

Productivity Per HourSteel Televisions

JapanSKorea

ProductivitySteel Televisions

Japan 6 3S. Korea

8 2

Ste

el

0 0S

teel

TelevisionsTelevisions

Japan South Korea

*Important Point: The production possibilities frontier is linear in these cases because the labor resource can be moved from the production of one good to the other at a constant rate.*

3/6 = 1/2 TV 2/8 = 1/4 TV

6/3 = 2 STL8/2 = 4 STL

Gains from trade +1/2 TV

Gains from trade +1/4 Steel

1 2 3 4 5 6 7 8

121110987654321

1 2 3 4 5 6 7 8

121110987654321

Suppose that Japan and South Korea settle on a trading price of 1 television for 3 units of steel (or 1/3 of a television for 1 unit of steel). 1. Japan produces 3 TVs, exporting 1 for 3 units of steel. 2. South Korea produces 8 units of steel, and exports 3 units for 1

television, this allows them to consume 5 units of steel and 1 television.

1. Anna and Barry can grow the following amounts of potatoes and cabbage with the same amountof labor. Type of problem: (output / input)

Anna – 1 Potatoe = ______ Cabbage Anna – 1 Cabbage = ______ PotatoeBarry – 1 Potatoe = ______ Cabbage Barry – 1 Cabbage = _______ Potatoe

2. Number caught per day. Type of problem: (output / input

Henry – 1 Deer = ______ Antelope Henry – 1 Antelope = ______ DeerJohn – 1 Deer = ______ Antelope John – 1 Antelope = ______ Deer

2 1/21.25 .80

1.5 2/3

.5 2

3. Days to produce one unit of each. Type of problem: (output / input)

XYZ Corp – 1 Car = ______ Plane XYZ Corp – 1 Plane = ______ CarsQKFX – 1 Car = ______ Plane QKFX – 1 Plane = ______ Cars

4. Acres to produce 100 bushels. Type of problem: (output / input)

India – 1 Corn = ______ Rice India – 1 Rice = ______ CornChina – 1 Corn = ______ Rice China – 1 Rice = ______ Corn

5. To produce the following from one ton of olives. Type of problem: (output / input)

Zaire – 1 Olive = ______ Bottles Zaire – 1 Bottle = ______ OlivesColombia –1 Olive = ______ Bottles Colombia – 1 Bottle = ______ Olives

Extra Credit“Tiger Woods should not mow his own lawn.” Use the concepts of specialization and comparative advantage to argue for this statement.Draw a personal PPF model.Draw a personal circular flow model and a detailed explanation for each part of the model.

Due Today – Binder CheckChapter 2 +31. Chapter 2 +3 Notes 2. PPF Activity Reflection

Questions and Graph 3. Absolute and Comparative

Practice 4. Free Response Questions5. Daily Tens 6. PPF Exercise Worksheet

US – What Are We Good At?

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