Comparative and Absolute Advantage

Unit: Trade In Economics

Comparative Advantage A person has a comparative advantage at

producing a product if they can produce it at a lower cost than others.

Everyone has a comparative advantage at something.

This is true because “lower cost” means the opportunity cost of producing something.

Absolute Advantage A person is the best at producing

something. Just because someone has an absolute

advantage it does not mean they have a comparative advantage.

Remember opportunity cost.

Guiding Thought:

“To find people’s comparative advantages, do not compare their absolute advantages. Compare their opportunity costs.”

Example One Jim can make 5 sales in a day. He can also type 10 memos

in one day. Pam can make 1 sale in a day. She can also type 25

memos in one day. Who has the Absolute advantage in sales? Comparative?

Why? Who has the Absolute advantage in typing memos?

Comparative? Why?

Example Two Megan can make 8 dresses in a week. She can

also make 5 pairs of pants in a week. Allison can make 5 dresses in a week. She can

also make 3 pairs of pants in a week. Who has the Absolute advantage in dresses?

Comparative? Why? Who has the Absolute advantage in pants?

Comparative? Why?

Welcome to Wellman Village Population: 30

Established: 2012 Businesses: 10 Goal: Have the best run businesses in the United

States.

Simulation Activity

Each student will get a certain card containing details about what they can produce at certain costs/ time constraints.

Each student will get into groups of three to make the best business.

At the end, the class should have a small town with well run businesses.

Writing Assignment

Typed or Hand Written 1 Paragraph Essay Prompt: Think of a time when

comparative and absolute advantage was used to establish who would do what in your life. Explain how the situation fits.