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Comparative Advantage Practice
1. Define Absolute Advantage
2. Define Comparative Advantage
Oil (Barrels)
Iron (tons)
Brazil
5,000
7,000
Venezuela
4,500
6,000
3. According to the chart above, which country has the absolute advantage in producing
a. Oil _______________________________
b. Iron _______________________________
4. If ______________ has an absolute advantage in producing both _______ and ______, then do they
need to trade with ________? (Your answer: ____). Why or why not?
5. The reason why nations trade is due to ________________ _________________.
*Here is what comparative advantage is all about….
If Brazil chose to produce Oil over Iron, then the opportunity cost of producing Oil over Iron is:
5000/7000 = 5/7 or .714
If Brazil chose to produce Iron over Oil, then the opportunity cost of producing Iron over Oil is:
7000/5000 = 7/5 or 1.4
According to the information above, Brazil should choose to produce _________ over ________ because
this choice has the lower opportunity cost (or the next best alternative given up).
So, the trade partner Brazil SHOULD be looking for is a country who has a comparative advantage
producing ____________, because that country would be able to produce _________ at a low
opportunity cost compared to other goods or services.
This explains why countries should ________________ in a good or service they produce at a lower
____________ _________ and trade those goods or service to another country.