What do you
know?
Can you define these
terms?
•Advantage
•Absolute
•Goods
•Services
•Balance of trade
•Balance of payments
•Specialization
•Deficit
•Surplus
Answer this question in at
least 4 sentences:
If you can produce everything
you need, why would you
trade?
BY THE END OF
THIS LESSON YOU
SHOULD KNOW….
Essential Questions
How do a nation’s limited resources affect its decision to
engage in international trade?
Why do specialization and trade lead to increased efficiencies,
production, consumption, and satisfaction?
Terms
Content Terms
• Balance of Trade
• Balance of Payment
• Absolute Advantage
• Comparative Advantage
• Trade Deficit
• Trade Surplus
Academic Terms
• Distinguish
• Specialize
How does the use of comparative advantage increase gains
from trade for two or more nations?
In what ways have you personally benefitted from gains from
trade?
Georgia Performance Standard
SSEIN1 The student will explain why individuals, businesses, and governments
trade goods and services.
a. Define and distinguish between absolute advantage and comparative advantage.
b. Explain that most trade takes place because of comparative advantage in the production of a
good or service.
c. Explain the difference between balance of trade and balance of payments.
Literacy Standards
RH.11-12.3 Analyze a complete set of ideas or sequence of events and explain how
specific individuals, ideas, or events interact and develop over the course of the text.
RH.11-12.7 Integrate and evaluate multiple sources of information presented in
different media or formats as well as in words in order to address a question or solve a
problem.
WH.11-12.1 Write arguments to support claims in an analysis of substantive topics or
text using valid reasoning and relevant and sufficient evidence.
As a class, brainstorm possible answers to the
question:
Why do
countries trade?
Countries trade because…
•
they cannot produce a product
domestically.
•
to have a wider variety of goods
available to consumers.
•
even if a they can produce a
product, if another country
specializes it that item, buying it
from them may increase quality
and decrease the price.
•
they wish to conserve limited
resources.
•
other countries have an
advantage.
Specialize- a task
assigned to one
person or group
that does it more
efficiently
Type of Advantage
There are 2 types of
advantage.
•Absolute Advantage
•Comparative Advantage
Advantage- a
condition or
circumstance that
puts one in a
favorable position
Absolute Advantage
Absolute Advantage- the concept that if 2 countries or businesses
have the same amount of resources, one country can produce more
than the other using fewer resources.
Country A has and Absolute Advantage
Country A
can produce
1 million gallons of
milk per year
Country X
can produce
½ million gallons of
milk per year
Absolute Advantage
Absolute Advantage occurs on an individual/firm level as well.
Who has an absolute advantage in this example?
Chance It Home
Bakery
can produce
150 dozen cookies
per month
Tucker’s Tasty
Treats Bakery
can produce
500 dozen cookies
per month
Why might
that bakery
have an
advantage?
Write your own
example of absolute
advantage
using local
businesses or
student
entrepreneurs in
your area.
Is Absolute Advantage
Everything?
Does this mean that Chance It Home Bakery should go out of
business because they cannot make as many cookies as Tucker’s
Tasty Treats? The answer is no. Absolutely advantage is not the
best way to determine who should produce.
Can you think of a reason or an example of why Chance It
bakery should continue making cookies?
Comparative Advantage
Comparative Advantage- the concept that one country or business
can produce a good or service at a lower opportunity cost than the
other.
Country X has and Comparative Advantage
Country A
can produce
1 million gallons of
milk per year at $1.25
per gallon
Country X
can produce
½ million gallons of
milk per year at $1
per gallon
Comparative Advantage
Comparative Advantage also occurs on an individual/firm level.
Fill in the blanks to give Chance It Home Bakery a comparative
advantage?
Given this scenario, Chance It should specialize in baking cookies
because they have a lower opportunity cost.
Chance It Home
Bakery
Tucker’s Tasty
can produce
Treats Bakery
150 dozen cookies
can produce
per month for $____
500 dozen cookies
per dozen
per month for $____
per dozen
How can you
distinguish
between
Comparative
and
Absolute
Advantage?
Distinguish- to
perceive as
different; to
separate into kinds
or categories
If a country can produce
everything it needs, why would
it trade?
Even if a country like the United States has an absolute advantage
with Panama in both milk and cookies, it might be cheaper to produce
cookies in Panama which gives them a comparative advantage. In
this case, it is more efficient for the US to specialize in producing
milk, and Panama to specialize in producing cookies. When we
specialize and trade, products become cheaper for consumers.
The US can make more televisions
than China so why don’t we make
our own?
According to The US Department of Labor, federal minimum wage is $7.25 per
hour. In China, individual provinces set the minimum wage. There is no federal or
national minimum wage. In one of the highest paying provinces Shenzhen,
minimum wage in 1,300 Yuan per month which works out to approximately $1.29
per hour.
If it takes a 6 hours of labor to build a television it would cost:
$43.50 in labor if made in the US
$7.74 in labor if made in China
Because labor is so much cheaper in China, it makes sense that they would
specialize in manufacturing products that required a great deal of low skilled
labor, while the US specializes in producing goods and services that require a
great deal of human and physical capital.
Strike a Balance
When countries trade, it is important to keep a
balance of goods exported and imported. The
term balance of trade refers to the value of all
goods and services exported minus the value of
all goods and services imported.
If a countries exports exceed its imports, then the
country has a trade surplus. If the country
imports more than it exports, then there is a trade
deficit.
Balance of Payments is how countries keep
track of all monetary transactions in each
sector(public and private) of the international
market. It is the difference between the money a
country pays out for imports and the money a
country gets paid from other countries for exports.
Debate!
Divide students into 3 groups. One group will
debate in the affirmative (for the statement),
another group will debate in the negative(against
the statement) and the third group will help
evaluate the arguments each round so the teacher
can award points. Go ahead and assign the
groups, affirmative, negative and evaluator.
(no you don’t get to know the topic before you are
assigned a group)
Once the class is divided, click to the next slide.
Debate!
Here is the debate topic. Remember the affirmative
group must argue that this statement is true, the
negative group will argue that the statement is
false.
The United States should impose
trade restrictions with China.
• Each student will receive 30 seconds
to deliver their speech or rebuttal.
• At the end of each round, arguments
will be evaluated on the clarity,
persuasiveness and use of evidence
in support.
YOU MADE IT TO THE
END OF THIS
LESSON!!
CAN YOU….
Define these Terms?
Content Terms
• Balance of Trade
• Balance of Payment
• Absolute Advantage
• Comparative Advantage
• Trade Deficit
• Trade Surplus
Academic Terms
• Distinguish
• Specialize
Answer these Questions?
How do a nation’s limited resources affect its decision
to engage in international trade?
Why do specialization and trade lead to increased
efficiencies, production, consumption, and
satisfaction?
How does the use of comparative advantage increase
gains from trade for two or more nations?
In what ways have you personally benefitted from
gains from trade?
Sample
Questions
Try these Questions
1. The table represents the number of bushels of
wheat and rice that the United States and China can
produce in one day.(numbers are in thousands).
Which of these conclusions can be drawn
from the data?
A. The United States has an absolute advantage in the
production of wheat, and China has an absolute
advantage in the production of rice.
B. The United States has an absolute advantage in the
production of rice, and China has an absolute
advantage in the production of wheat.
C. China has an absolute advantage in the production of
both wheat and rice.
D. The United States has an absolute advantage in the
production of both wheat and rice.
2. In the country of Balmoria, it takes 9 hours of labor
to harvest a bushel of wheat and 6 hours of labor to
build a wooden bookcase. In the nearby country of
Dashmund, it takes 8 hours of labor to harvest a
bushel of wheat and 7 hours to build a wooden
bookcase. In terms of labor on these identical goods,
which statement describes the situation accurately?
A. Dashmund has an absolute advantage in both wheat
and bookcases.
B. Balmoria has an absolute advantage in both wheat and
bookcases.
C. Dashmund has a comparative advantage in wheat
harvesting.
D. Balmoria has a comparative advantage in wheat
harvesting.
Try these Questions
3. Which of the following results
when federal government
expenditures are less than the
federal government’s total receipts?
A.a trade surplus
B.a federal budget deficit
C.a negative balance of payments
D.a federal budget surplus
Check your answers
1. D (this is a question from the released EOCT)
2. C (this is a question from the EOCT Student Guide)
3. D (this is a question from the released EOCT)
ADDITIONAL RESOURCES
• “Our Comparative Advantage” New York Times.
http://www.nytimes.com/roomfordebate/2011/01/18/can-the-uscompete-with-china-on-green-tech/our-comparative-advantage
• US Department of Labor
http://www.dol.gov/whd/minimumwage.htm
• “China Boosts Minimum Wage” Bloomberg Business Week
http://www.businessweek.com/articles/2012-03-07/china-booststhe-minimum-wage
• Georgia Department of Education’s Economics/Business/Free
Enterprise EOC Assessment Guide
http://www.gadoe.org/Curriculum-Instruction-andAssessment/Assessment/Documents/Milestones/Assessment%20Gui
des/GM%20Economics%20EOC%20Assessment%20Guide%200817
15.pdf
ADDITIONAL RESOURCES
• Economics GPS Frameworks: Unit 5- “International Trade of Mystery”
https://www.georgiastandards.org/Frameworks/GSO%20Frameworks/Econom
ics%20Unit%205.pdf
• Georgia Department of Education Released EOCT’s and answer keys
http://www.doe.k12.ga.us/Curriculum-Instruction-andAssessment/Assessment/Pages/EOCT-Released-Tests.aspx
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