1 / 13

Mr. Gerdes’ AP Macroeconomics

Mr. Gerdes’ AP Macroeconomics. Comparative Advantage. Ricky Ricardo. Lucy’s Cuban-American husband drumming on the bongo. David Ricardo. English economist responsible for promoting comparative advantage as the basis of trade. No relation to Ricky Ricardo.

cili
Download Presentation

Mr. Gerdes’ AP Macroeconomics

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Mr. Gerdes’AP Macroeconomics Comparative Advantage

  2. Ricky Ricardo • Lucy’s Cuban-American husband drumming on the bongo.

  3. David Ricardo • English economist responsible for promoting comparative advantage as the basis of trade. No relation to Ricky Ricardo.

  4. Absolute Advantage v. Comparative Advantage • Absolute Advantage • Faster, more, more efficient • Comparative Advantage • Lower opportunity cost

  5. Specialization • Producing according to comparative advantage

  6. Example • Assume David Ricardo and Ricky Ricardo are going to throw a party in exactly one hour. They decide on serving homemade pizzas and cakes. Assume they have like 15 ovens in their apartment and lots of pots and pans. Use the information in the next slide to determine who should produce what.

  7. Example

  8. Example Who has the absolute advantage in baking cakes? Who has the absolute advantage in making pizza?

  9. Example Why? Well, because 4 cakes>2 cakes & 8 pizzas>6 pizzas.

  10. Example Who has the comparative advantage in baking cakes? Who has the comparative advantage in making pizza?

  11. Example Who has the comparative advantage in baking cakes? Who has the comparative advantage in making pizza?

  12. Example Why? Ricky only gives up 2 pizzas in order to bake a cake, whereas David gives up 3 pizzas in order to bake a cake.

  13. Example Furthermore, it only cost David 1/3of a cake to make a pizza, whereas it costs Ricky ½ of a cake to make a pizza.

More Related