1. Absolute & Comparative Advantage
Spring Semester 2018
Rixie

2. Quick Review: What is opportunity cost?

3. Absolute Advantage
The ability to create a product more efficiently than another producer

4. How to Calculate Efficiency
Efficiency = amount produced resources used

5. Who has the absolute advantage?
Production of Sandwiches
Number of Employees
Payton’s Pantry
40 sandwiches / hour 10
Simon’s Snacks
60 sandwiches / hour

6. Comparative Advantage
The ability to produce goods with a lower opportunity cost than another producer

7. Who has the comparative advantage?
Production of Tacos
Production of Burritos
Payton’s Pantry
3 / hour
9 / hour
Simon’s Snacks
12 / hour
Payton’s Pantry
1 taco = ___ burritos
1 burrito = ___ tacos
Simon’s Snacks

8. Specialization Limiting the kind of goods and services produced
Chosen based on absolute and comparative advantage

9. Producers…
Gain an absolute advantage by specializing in what can be made most efficiently
Gain a comparative advantage by specializing in the product with the lowest opportunity cost

10. How this helps producers:
Creates savings through specialization
Allows profit- maximization

11. How this helps consumers:
More goods to choose from
Get products at a lower price (passed on from producers’ savings)

12. Analyzing Graphs

13. Practice Sam and KC both work in a tax office.
Both workers use the same number of resources to do their jobs.
Who has the absolute advantage in tax returns?
Who has the absolute advantage in sales calls?

14. Practice Who has the comparative advantage in tax returns?
Who has the comparative advantage in sales calls?