Basics of Comparative Advantage

Comparative Advantage

The Basics with Harry and Dynah

​The following information shows the production of items for Harry and Dynah

​Notice:
There are only 2 participants making only 2 items

Multiple Choice

Who has an absolute advantage in producing books?

• Harry

• Dynah

• Both

• Neither

Multiple Choice

Who has an absolute advantage in producing cookies?

• Harry

• Dynah

• Both

• Neither

You want to find how many cookies Harry loses for each book he makes.

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​What is the opportunity cost for Harry to make books?

Open Ended

What is the opportunity cost for Harry to produce a book? Show your work.

You want to find how many cookies Dynah loses for each book she makes.

​

​What is the opportunity cost for Dynah to make books?

Open Ended

What is the opportunity cost for Dynah to make 1 book? Show your work.

In order to determine trade, you need to know opportunity cost

Harry's opportunity cost is 1 book for 20 cookies.
He needs to have a trade that will equal at least 1 book for 20 cookies or he won't trade.
Dynah's opportuntiy cost is 1 book for 40 cookies.
She needs to have a trade that will not cost her more than 40 cookies or she won't trade.

Multiple Choice

Based on the information provided above, which of the following must be true?

• Foreign Nation has an absolute advantage in the production of computers

• Neither nation has a comparative advantage in the production of computers

• Home Nation has a comparative advantage in the production of autos

• Home Nation has an absolute advantage in the production of computers.