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Comparative and Absolute Advantage
Unit: Trade In Economics
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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.
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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.
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Guiding Thought:
“To find people’s comparative advantages, do not compare their absolute advantages. Compare their opportunity costs.”
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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?
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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?
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Welcome to Wellman Village Population: 30
Established: 2012 Businesses: 10 Goal: Have the best run businesses in the United
States.
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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.
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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.