21 Example, 2 people, 2 jobs, time required Job A Job B Judy Sam 60 min.75 min 90 min150 min
22 In the table, Judy is absolutely advantaged at both tasks, but what is her comparative advantage? What is Sam’s comparative advantage?
23 Judy’s comparative advantage is at job B, and Sam’s comparative advantage is at job A To see why, look at the ratios in the table- Judy can do job A in 2/3 the time of Sam, but she can do job B in ½ the time, so she is relatively more efficient at job B.
24 Theory of comparative advantage Argues that output is greater when resources tend to specialize in their greatest comparative advantages
25 ProblemProblem With the same quantity of resources, Euphoria can produce 100 barrels of beer to Extasia’s 50 barrels, and Euphoria can produce 150 pizzas to Extasia’s 100. According to comparative advantage, what product should Extasia tend to specialize in? What about Euphoria?
26 ANSWER: Extasia should specialize in pizzas, Euphoria in beer production
27 What are Factors of Production? What is Production Possibilities? Why does division of labor increase productivity?Why does division of labor increase productivity? What is an Opportunity Cost? What is Comparative Advantage? What is Absolute Advantage?
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