unit 7 5/10/17

COMPARATIVE ADVANTAGE

• Specialization - individuals and countries can be made better off if they will produce and what they have a comparative advantage and then trade with others for whatever else they need
• Absolute advantage – the producer that can produce the most outputs or requires the least amount of inputs
• Comparative advantage – producer with the lowest opportunity cost
• Countries should trade if they have a relatively lower opportunity cost. They should specialize in the good that is cheaper for them to produce
• Output problem presents in the data as products produced given a set of resources
• Input problem presents the data as amount of resources needed to produce a fixed amount of output
• When identifying absolute advantage, input problems can change the scenario from who can produce most to who can produce a given product with the least resources

• Country A will have an absolute advantage on cars and trucks because they take up less time.
• To find comparative advantage do this:
• For cars, country A 30÷6 = 5. The opportunity cost for country be would be 35÷21 = 1.6,  so country B has comparative advantage on cars.
• For trucks, country A will be 6÷30 = .2 and for country B it will be 21÷35 = .6,  so country A has the comparative advantage on trucks.