Comparative v Absolute Advantage Absolute Advantage given the

Comparative v Absolute Advantage

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

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

Two countries both make T-shirts and Jeans Country A Country B • Country A can make 100 tshirts or 100 jeans • Country B can make 300 tshirts 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 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 1 t-shirt (their opportunity cost is 1 t-shirt) • 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)

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

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?

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

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?