Comparative Advantage and Trade Why do economies trade?

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Presentation transcript:

Comparative Advantage and Trade Why do economies trade?

Graph the Following PPC Packs of GumChocolate Bars

Answer the Following: 1.What is the slope of the curve? 2.What is the opportunity cost of producing a pack of gum? 3.What is the opportunity cost of producing a chocolate bar? 4.Calculate the area under the curve.

Packs of Gum Chocolate Bars Production Possibilities Curve PPC

Answer the Following: 1.What is the slope of the curve? 2.What is the opportunity cost of producing a pack of gum? 3.What is the opportunity cost of producing a chocolate bar? 4.Calculate the area under the curve. -4/5 -4/5 of a chocolate bar packs of gum 90 units

Plot the following PPC on the same graph Packs of GumChocolate Bars

Packs of Gum Chocolate Bars Production Possibilities Curve PPC A PPC B

Who has absolute advantage? CountryGumChocolate A1512 B410 Which country can make more? Country A has absolute advantage in both gum and chocolate

Who has comparative advantage? CountryGumChocolate A-4/5 chocolate-5/4 gum B- 5/2 chocolate-2/5 gum How do the opportunity costs compare for both countries? Country A has comparative advantage in gum Country B has comparative advantage in chocolate

Work Together… StateApplesTimber Oregon1040 Washington Draw the PPCs for both states 2.Who has absolute advantage? 3.Who has comparative advantage? 4.What happens to production and consumption when Oregon and Washington trade 20 apples for 20 timber? Values represent all resources spent on one good (the other value is 0)