© south-westerncontemporary economics: lesson 2.2 12.1 students understand common terms &...
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© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.2
12.1 Students understand common terms & concepts and economics reasoning.
Standard Address
1
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.32
LESSON 2.3
Comparative Advantage Explain the law of comparative
advantage. Understand the gains from specialization
and exchange.
Objectives
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LESSON 2.3
Comparative Advantage law of comparative advantage absolute advantage specialization barter money division of labor
Key Terms
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Comparative Advantage
Absolute advantage DEFINE?
Law of comparative advantage DEFINE?
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Comparative Advantage and Specialization
X hours without Specialization
David You
Car washing
2 1.5
Lawn mowing
3 1
5 2.5
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Comparative Advantage and Specialization
X hours with Specialization
Car washing
You
Lawn mowing
David
1 3
1 1
2 4
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Comparative Advantage and SpecializationX hours without Specialization
David You
Car washing
2 1.5
Lawn mowing
3 1
5 2.5
X hours with Specialization
Car washing
You
Lawn mowing
David
1 2
1 2
2 4
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Comparative Advantage
Gains from specialization Absolute advantage
Focuses on which of you uses the fewest resources
Law of comparative advantage Focuses on what else those resources could
have produced – that is, on the opportunity cost of those resources.
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Comparative Advantage
Exchange Barter – works best in simple economies
where there is little specialization and few types of goods to trade. For economies with greater specialization,
money plays an important role in facilitating exchange.
Money – coins, bills, and checks – serve as a medium of exchange
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Comparative Advantage Wider application
Due to such factors as: climate, an abundance of labor, workforce skills, natural resources, and capital stock,
certain parts of the country and certain parts of the world have comparative advantage in producing particular goods.
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What is the law of comparative advantage?
CHECKPOINT: Page 53Comparative Advantage
The law of comparative advantage says the worker with the lower opportunity cost of producing a particular output (task/job) should specialize in that output.
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Specialization
Specialization is based on comparative advantage, most people consume little of what they produce and produce little of what they consume.
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Specialization
Division of labor Define?
Drawback of specialization People are no longer self-sufficient as
past generations
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What are the gains from specialization and exchange?
CHECKPOINT: Page 54Specialization
The gains from specialization and exchange are that everyone’s time and resources are being allocated most efficiently.