1. Comparative vs. Absolute Advantage

2. Absolute Advantage
Given the exact same resources, country A can produce more of a good than country B

3. Who has the Absolute Advantage ?
Soccer Balls
Pasta (tons)
Italy 35 8
Germany 70 5

4. What about now? Cars (millions) Airplanes (millions) USA 11.2 7.2
Canada
2.2
5.6

5. Comparative Advantage
Given the same resources, country B produces good X at a lower opportunity cost
This means B gives up less of good Y when he produces good X

6. Two countries both make T-shirts and Jeans
Country A
Country B
Country B can make 300 t-shirts or 100 jeans
If they make 1 t-shirt they are giving up the chance to make 1/3 pair of jeans (their opportunity cost is 1/3 pair of jeans)
If they make 1 pair of jeans, they are giving up the chance to make 3 t- shirts (their opportunity cost is 3 t- shirts)
Country A can make 100 t-shirts or 100 jeans
If they make 1 t-shirt they are giving up the chance to make 1 pair of jeans (their opportunity cost is 1 pair of jeans)
If they make 1 pair of jeans, they are giving up the chance to make 1 t- shirt (their opportunity cost is 1 t- shirt)

7. Two people can wash dishes or vacuum a room
Dan
Cindy
In one hour, Dan can wash 1 load of dishes or vacuum ½ of a room
If he washes 1 load of dishes, he gives up the opportunity to vacuum ½ a room
If he vacuums 1 whole room, he gives up the opportunity to wash 2 loads of dishes
In one hour, Cindy can wash 1 load of dishes or vacuum 1 room
If she washes 1 load of dishes, she gives up the opportunity to vacuum 1 room
If she vacuums 1 whole room, she gives up the opportunity to wash 1 loads of dishes

8. Questions Does anyone have the absolute advantage in dishwashing?
Does anyone have the absolute advantage in vacuuming?
What is Dan’s opportunity cost of washing dishes?
What is Dan’s opportunity cost of vacuuming a room?
What is Cindy’s opportunity cost of washing dishes?
What is Cindy’s opportunity cost of vacuuming a room?
Does anyone have the comparative advantage in dishwashing?
Does anyone have the comparative advantage in vacuuming?

9. Two people can clean offices and jail cells
Andy and Hannah both clean offices and jail cells
Clean 1 Office
Clean 1 Jail Cell
Hannah
20 minutes
15 minutes
Andy
1 hour
30 minutes

10. Questions Does anyone have the absolute advantage in cleaning offices?
Does anyone have the absolute advantage in cleaning jail cells?
What is Andy’s opportunity cost of cleaning offices?
What is Andy’s opportunity cost of cleaning jail cells?
What is Hannah’s opportunity cost of cleaning offices?
What is Hannah’s opportunity cost of cleaning jail cells?
Does anyone have the comparative advantage in cleaning offices?
Does anyone have the comparative advantage in cleaning jail cells?