© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.2 12.1 Students understand common terms & concepts and economics reasoning. Standard Address 1
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.32 LESSON 2.3 Comparative Advantage Explain the law of comparative advantage. Understand the gains from specialization and exchange. Objectives
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.33 LESSON 2.3 Comparative Advantage law of comparative advantage absolute advantage specialization barter money division of labor Key Terms
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.34 Comparative Advantage Absolute advantage DEFINE? Law of comparative advantage DEFINE?
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.35
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.36 Comparative Advantage and Specialization X hours without Specialization DavidYou Car washing 21.5 Lawn mowing
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.37
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.38 Comparative Advantage and Specialization X hours with Specialization Car washing You Lawn mowing David
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.39 Comparative Advantage and Specialization X hours without Specialization DavidYou Car washing 21.5 Lawn mowing X hours with Specialization Car washing You Lawn mowing David
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Comparative Advantage Gains from specialization Absolute advantage Focuses on which of you uses the fewest resources Law of comparative advantage Focuses on what else those resources could have produced – that is, on the opportunity cost of those resources.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Comparative Advantage Exchange Barter – works best in simple economies where there is little specialization and few types of goods to trade. For economies with greater specialization, money plays an important role in facilitating exchange. Money – coins, bills, and checks – serve as a medium of exchange
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Comparative Advantage Wider application Due to such factors as: climate, an abundance of labor, workforce skills, natural resources, and capital stock, certain parts of the country and certain parts of the world have comparative advantage in producing particular goods.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON What is the law of comparative advantage? CHECKPOINT: Page 53 Comparative Advantage The law of comparative advantage says the worker with the lower opportunity cost of producing a particular output (task/job) should specialize in that output.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Specialization Specialization is based on comparative advantage, most people consume little of what they produce and produce little of what they consume.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Specialization Division of labor Define? Drawback of specialization People are no longer self-sufficient as past generations
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON What are the gains from specialization and exchange? CHECKPOINT: Page 54 Specialization The gains from specialization and exchange are that everyone’s time and resources are being allocated most efficiently.