Laura Ewing/President
www.economicstexas.org
1801 Allen Parkway
Houston, TX 77019
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If you could produce
anything for trade,
what would it be?
Why?
What human resources
do you have available?
What natural resources
do you have available?
What capital would you
need?
If you could produce anything, what
would it be?
What is comparative advantage?
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What is it?
Why trade?
What is comparative advantage?
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The voluntary
exchange of goods and
services
Occurs when the
expected gains
outweigh the costs
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Specialization
Specializing in the
production of goods
and services that can
be produced at a lower
opportunity cost than
the cost a trading
partner would have to
pay to produce the
same products.
Comparative Advantage
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Specialization
Based on comparative
advantage increases
the total output and
consumption of the
goods that are traded.
What happens to the
quantity of products
with specialization
based on comparative
advantage?
Comparative Advantage
Which were domestic?
Which were
international?
On a scale of 1 to 5, how
happy are you with the
item? Record on sheet.
You have two minutes to
trade within your group if you
want. You may now show
cards.
Round
Number
of Trades
Number
of
students
happier
after
trading
1
2
What are examples of
trades you made?
Rate your happiness with
the items now and record.
Group A: White Cards
Group B: Yellow cards
Group C: Green Cards
Pair of baggy jeans
(male)
Pair of basic jeans
(male) (2)
Pair of low rise jeans
(female)
Pair of designer jeans
(female)
Professional basketball Professional hockey
team jersey
team jersey (2)
T-shirt of favorite
band (2)
Pair of summer
sandals (female)
Pair of carpenter pants
(male) (2)
Pair of athletic shoes
(female) (2)
Professonal baseball
team cap (2)
Professional football
team jersey
Pair of sandals (male)
T-shirt of favorite
sports team
Sweatshirt
Designer bag (female)
Sports Watch (female)
Pair of athletic shoes
(male)
1. REVIEW LIST
2. TRADE FOR 2-3
MINUTES
3. YOU DO NOT HAVE
TO TRADE
Time: 3 to 4 minutes
You do not have to trade
Round
Number
of Trades
Number
of
students
happier
after
trading
1
2
What are examples of
trades you made?
Rate your happiness with
the items now and record.
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Relate activity to the real
world…what parallels do
you see?
Did more people trade in
round 1 or 2? Why?
Were you required to
trade?
Did anyone have a higher
rating in round one than
2? If so, how did that
happen?
The number of items to
trade remained the same,
but people were happier
at the end of which
round ___? Why?
Why were you willing to
trade?
Should the U. S. trade with
other countries? Why or
why not?
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1. The opportunity cost
is the highest valued
alternative that is given
up when a choice is
made
For example:
Meat pizza, veggie pizza,
cheese pizza, salad-What
are your first and second
choices?
How do you relate to the
pizza shop?
What is your choice?
What is the opportunity
cost of your choices?
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1. Two workers in a
pizza shop and then
two countries
2. Decide for each if
they should specialize
and trade
3. Key effect for each is
to increase the amount
of goods produced and
consumed
Work individually on
Visual 3
Discuss Visual 3
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1. Comparative
Advantage occurs when
people or firms
specialize in the
production of a good or
service for which they
have a lower opportunity
cost.
For example:
Meat pizza, veggie pizza,
cheese pizza, salad-What
are your first and second
choices?
What is your choice?
What is the opportunity
cost of your choices?
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1. Country A
2. 6 volunteers
3. Receive Activity 2,
Production Card, Country
A
4. This is a small country
with six workers
5. Production in one day:
◦ Each worker 8 cells or 4
microwave ovens
Show cell phones
6.
Display visual 4
What is the
opportunity cost of
producing A. 8 cell phones?
B. 1 cell phone?
C. 4 microwave
ovens?
D. 1 microwave
oven?
Show microwave ovens
Country A
A
B
C
D
E
F
G
Number of
Cell
Phones
48
40
32
24
16
8
0
Number of
Microwave
Ovens
0
4
8
12
16
20
24
1. How does the number of cell phones that can be produced change
as Country A produces more microwave ovens?
2. How does the number of microwaves Country A can produce change
as more cell phones are produced?
3. What does the overall chart show?
4. What is this type of chart called?
5. What is the trade-off in producing more of either good?
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1. Country B
2. 6 volunteers
3. Receive Activity 2,
Production Card, Country
B
4. This is a small country
with six workers
5. Production in one day:
◦ Each worker 1 cell phone
or 2 microwave ovens
Show cell phones
6.
Display visual 4
What is the
opportunity cost of
producing A. 1 cell phone?
B. 2 cell phone?
C. 1 microwave oven?
D. 2 microwave
oven?
Show microwave ovens
Country B
A
B
C
D
E
F
G
Number of
Cell
Phones
1
1
2
3
4
5
6
Number of
Microwave
Ovens
12
10
8
6
4
2
1
1. What does the production possibility curve show you about making
cell phones and microwaves ovens in Country B?
2. Why does this occur?
3. If each country only produces cell phones, which country can
produce more cell phones?
4. If each country only produces microwave ovens, which country can
produce more microwave ovens?
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Who has an absolute
advantage in producing
microwaves?
When a worker can
produce more of a
good than a worker in
another country, the
worker in the first
country has an
absolute advantage in
producing that good.
Who has an absolute
advantage in producing cell
phones?
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Country A produced at
Combination B. Please
circle
Divide into pairs
Use Visual 4 to determine which
country has a comparative
advantage in the production of cell
phones and microwave ovens.
At B and D combination, what is the
total output of cell phones and
microwaves?
If the two countries specialize and
trade, what is the total output and
production? Consumption?
What are disadvantages of S and T?
Country B produced at
Combination D. Circle D.
1. Why do individuals,
organizations and nations
trade?
2. How does overall level of
satisfaction increase when
people trade?
3. How does specialization and
trade affect production and
consumption?
4. What is absolute advantage?
5. What is comparative
advantage?
6. View Visual 5
1. Why do individuals,
organizations and nations
trade?
2. How does overall level of
satisfaction increase when
people trade?
3. How does specialization and
trade affect production and
consumption?
4. What is absolute advantage?
5. What is comparative
advantage?
6. View Visual 5