Absolute Advantage and Comparative Advantage

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Absolute Advantage and
Comparative Advantage
•ABSOLUTE ADVANTAGE
One nation can produce more output with
the same resources as the other.
•COMPARATIVE ADVANTAGE
One nation can produce a good at a lower
opportunity cost than the other.
•EXAMPLES OF COMPARATIVE ADVANTAGE
Lawyer and secretary
Doctor and nurse
Unit 1 : Microeconomics
National Council on Economic Education
Visual 1.4
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The Circular Flow of Resources,
Goods, Services and Money Payments
Unit 1 : Microeconomics
National Council on Economic Education
Visual 1.3
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Possibilities Curve Production
Unit 1 : Microeconomics
National Council on Economic Education
Visual 1.2
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The Economic Way of Thinking
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Everything has a cost.
People choose for good reasons.
Incentives matter.
People create economic systems to
influence choices and incentives.
People gain from voluntary trade.
Economic thinking is marginal thinking.
The value of a good or service is affected by
people’s choices.
Economic actions create secondary effects.
The test of a theory is its ability to predict
correctly.
Unit 1 : Microeconomics
National Council on Economic Education
Visual 1.1
http://apeconomics.ncee.net
Determining Comparative
Advantage (Output Method)
1. Which nation has an absolute advantage in producing CDs?
2. Which nation has an absolute advantage in producing beef?
3. Which nation has a comparative advantage in producing
CDs?
4. Which nation has a comparative advantage in producing
beef?
5. Should Japan specialize in CDs or beef?
6. Should Canada specialize in CDs or beef?
Unit 1 : Microeconomics
National Council on Economic Education
Visual 1.5
http://apeconomics.ncee.net
Changes in Demand and Quantity Demanded
Unit 1 : Microeconomics
National Council on Economic Education
Visual 2.1
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