ProductionPossibilities CurveFrontier Crystal 1 million Crystal A B
Production-Possibilities Curve/Frontier
Crystal 1 million Crystal A B 700, 000 80, 000 A B 40, 000 C 0 30, 000 Ireland 100, 000 Rum Crystal Rum A 1 million 0 B 700, 000 35, 000 C 0 100, 000 0 40, 000 C 80, 000 Rum Puerto Rico Crystal A 80, 000 B 40, 000 C 0 Rum 0 40, 000 80, 000
Crystal 1 million Crystal A B 700, 000 80, 000 40, 000 A B C 0 30, 000 Ireland 100, 000 Rum 0 40, 000 C 80, 000 Puerto Rico Rum Which country has the absolute advantage in the production of Crystal? In the production of Rum? What did I tell you to do with absolute advantages? KICK IT OUT THE WINDOW!!!
Crystal 1 million 700, 000 Crystal A B 80, 000 A 40, 000 0 30, 000 Ireland C 100, 000 Rum 0 B 40, 000 C 80, 000 Rum Puerto Rico Which country has the comparative advantage in Crystal? In Rum?
Crystal 1 million 700, 000 Crystal A B 80, 000 A 40, 000 0 30, 000 Ireland C 100, 000 Rum 0 B 40, 000 C 80, 000 Rum Puerto Rico There are___steps 5 in figuring out which country has the comparative advantage.
Crystal 1 mil. A Crystal B 700, 000 80, 000 A 40, 000 0 30, 000 C 100, 000 Rum 0 B 40, 000 C 80, 000 Rum Ireland Puerto Rico 1. Know the definition of comparative advantage One entity can produce something at a LOWER MARGINAL OPPORTUNITY COST than another entity. 2. Set up a table: Ireland 1 Rum = __Crystal 1 Crystal = __ Rum 3. Go to the Xtremes (X and Y Games) Puerto Rico 1 Rum = __Crystal 1 Crystal = __Rum
Crystal 1 mil. A Crystal B 700, 000 80, 000 A 40, 000 0 1. 2. 3. 4. 5. 30, 000 C 100, 000 Rum 0 B 40, 000 C 80, 000 Rum Ireland Puerto Rico Know the definition of comparative advantage Ireland Puerto Rico Set up a table: 1 Rum = 10 __Crystal 1 Rum = __Crystal 1 1 Crystal = ____ 1/10 Rum 1 Crystal = __Rum 1 Go to the Xtremes (X and Y Games) Fill in the blanks (starting with Puerto Rico first) Circles and Arrows
Crystal 1 million 700, 000 A Crystal B 80, 000 A 40, 000 0 30, 000 Ireland C 100, 000 Rum 0 B 40, 000 C 80, 000 Rum Puerto Rico We decided that Ireland should produce ALL the crystal and Puerto Rico should produce ALL the rum. How much crystal should Ireland produce? 1 million cases How much rum should Puerto Rico produce? 80, 000 barrels Should Ireland just hold onto its cases of crystal and Puerto Rico just hold onto its barrels of rum? NO! What should each country do after specialization? Trade
Crystal 1 million 700, 000 A Crystal B 80, 000 A B 40, 000 0 Produces 30, 000 C 100, 000 Rum Ireland Trades Consumes after specialization and Trade 0 40, 000 C 80, 000 Rum Puerto Rico Consumes before Trade (Point B) Gain from Trade IRELAND C R 1 million -175, 000 0 +35, 000 825, 000 35, 000 700, 000 30, 000 175, 000 40, 000 +125, 000 + 5, 000 PUERTO RICO C R 0 80, 000 +175, 000 -35, 000 +135, 000 +5, 000
Crystal 1 million A Crystal D 825, 000 700, 000 D 175, 000 80, 000 A B 40, 000 B 35, 000 0 Produces 30, 000 C 100, 000 Rum Ireland Trades Consumes after specialization and Trade IRELAND C R 1 million -175, 000 0 +35, 000 825, 000 35, 000 Plot this column 45, 000 C 0 80, 000 Rum Puerto Rico Consumes before Trade (Point B) 700, 000 30, 000 40, 000 Gain from Trade +125, 000 + 5, 000 PUERTO RICO C R 0 80, 000 +175, 000 -35, 000 175, 000 40, 000 +135, 000 +5, 000
Crystal 1 million A Crystal D 825, 000 700, 000 80, 000 A B 40, 000 35, 000 0 D 175, 000 30, 000 Ireland C 100, 000 Rum B 45, 000 C 0 40, 000 80, 000 Rum Puerto Rico Which country is obviously better off through this specialization and trade--Ireland or Puerto Rico? Both Countries are!!! Both countries are now outside their own production capabilities. Through specialization and trade all parties are better off.
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