1. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.2  12.1 Students understand common terms & concepts and economics reasoning. Standard Address 1

2. © 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

3. © 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

4. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.34 Comparative Advantage  Absolute advantage  DEFINE?  Law of comparative advantage  DEFINE?

5. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.35

6. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.36 Comparative Advantage and Specialization X hours without Specialization DavidYou Car washing 21.5 Lawn mowing 31 52.5

7. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.37

8. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.38 Comparative Advantage and Specialization X hours with Specialization Car washing You Lawn mowing David 13 11 24

9. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.39 Comparative Advantage and Specialization X hours without Specialization DavidYou Car washing 21.5 Lawn mowing 31 52.5 X hours with Specialization Car washing You Lawn mowing David 12 12 24

10. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.310 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.

11. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.311 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

12. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.312 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.

13. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.213 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.

14. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.314 Specialization  Specialization is based on comparative advantage, most people consume little of what they produce and produce little of what they consume.

15. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.315 Specialization  Division of labor  Define?  Drawback of specialization  People are no longer self-sufficient as past generations

16. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.216 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.