03 comp advantage graphs and applications

Trade openerWhat is good about living along the US/Mexico border?

Where was your shirt made? (Have your neighbor check)

http://www.flashworldmap.com/

Today: Mankiw Chapter 3

Review of PPF’s

On the production possibilities frontier shown, which point or points are NOT possible for this economy to produce?

a.A, B, C, Db.E and Fc.E onlyd.F only

On the production possibilities frontier shown, which point or points are efficient?

a.A, B, C, Db.B and Cc.E and Fd.F only

Comparative Advantage Activity

Absolute Advantage

• Total hours to finish jobs

Comparative Advantage

Specialization of labor• Firms & countries

figure out more efficient methods of production

• Effect on concept of trade?

Honduras

• 100 tons of sugar/year

OR• 100 tons of

bananas

• PPF

Cuba

• 600 tons of sugar/year

OR• 200 tons of

bananas

Cuba & Honduras• Scarcity of farm land• Who has absolute

advantage?• Who has the

comparative advantage of trade?

• Transaction cost• Why is this better? Cuba:

600 tons of sugar/yearOR200 tons of bananas

Honduras:

100 tons of sugar/yearOR100 tons of bananas

Developed vs. Emerging markets

Make a shirt in the USA:LandLaborCapital

Make a shirt in Honduras:LandLaborCapital

Developed vs. Emerging markets

Design smartphone in the USA:LandLaborCapital

Design smartphone in Honduras:LandLaborCapital

Another way of looking at Comparative Advantage

• Should Jason Terry clean his own house?

Another way of looking at Comparative Advantage

• Should Lebron James clean his house?

Another way of looking at Comparative Advantage

• Should Steph Curry clean his house?

Another way of looking at Comparative Advantage

• Walmart sells everything?

• Vs

• Specialty shops

Comparative Advantage AssignmentDue

• Your Choice:

• AP Econ Workbook Assignment

• Write 2-3 paragraph to John McCain explaining the concepts of absolute advantage, comparative advantage and the benefits of approving the TransPacific Partnership, a massive free trade deal between the US/Canada and many Asian countries

• 5pts extra if I watch you e-send it