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Global Economy Unit Visuals 1

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by

Taylor Rankin

on 3 February 2015

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Transcript of Global Economy Unit Visuals 1

Global Economics
International Trade is based on Comparative advantage; countries specialize in what they can produce more cheaply.

Specialization
leads to
Economic efficiency
leads to
Less Self Sufficiency
leads to
Economic Interdependence

***
Specialization allows more efficient use of our scarce resources.
***

Cakes Lawns Opportunity Cost
10 5
10÷5 5÷5
2 1


2÷2 1÷2
1 1/2

Cakes Lawns
9 3
9÷3 3÷3
3 1

3÷3 1÷3
1 1/3
1. Additional Resources
2. New Technology
3. International Trade
3 Ways to Move Beyond PPF
International Trade
Comparative and Absolute Advantage
1. All countries benefit - obtain more goods than if they produced everything on their own
2. Interdependence between countries is greater, countries no longer produce everything themselves
3. Standard of living increases for all
Advantages of trade based on comparative advantage:
According to David Ricardo, whoever can make a product at the
lowest opportunity cost
should produce it.
The ability to produce more of a given product with given resources than another country.
To produce 1 cake, the opportunity cost is 1/2 a lawn To produce 1 lawn it costs 3 cakes
Brenda bakes 9 cakes a day
OR
mows 3 lawns
Billy bakes 10 cakes a day
OR
mows 5 lawns
International trade - voluntary exchange of goods and services between people of different nations
PPF for Billy
CAKES
When Billy makes 1 more cake, he gives up 1/2 lawn.
LAWNS
Brenda
Cakes Lawns
9 3
3 1
1 1/3
Billy
Cakes Lawns
10 5
2 1
1 1/2
Terms of trade, or trading range
1 lawn mowing for 2-3 cakes
***If trade takes place in this range it will be beneficial to both parties.***
Brenda
Cakes Lawns
9 3
3 1
1 1/3
Billy
Cakes Lawn
10 5
2 1
1 1/2
Who has the comparative advantage in cake production?
When Brenda mows 1 more lawn, she gives up 3 cakes.
PPF for Brenda
When Brenda bakes 1 more cake, she gives up 1/3 lawn.
PPF for Brenda
When Billy mows 1 more lawn, he gives up 2 cakes.
Trade helps a nation move beyond their Production Possibility Curve or Frontier
Butter
Guns
F
C
B
A
Absolute Advantage:
*Who has the absolute advantage in lawn mowing production?
*Who has the absolute advantage in cake production?
Billy - 10 is more than 9
Billy - 5 is more than 3
To determine who has the lower opportunity cost we need to get our ratio to show for every one item produced what will be given up or what could have been produced using those resources.
COMPARATIVE ADVANTAGE
Billy bakes 10 cakes a day
OR
mows 5 lawns
To produce 1 cake, the opportunity cost is 1/2 a lawn
To produce 1 lawn, it costs 2 cakes
To produce 1 lawn it costs 3 cakes
To produce 1 cake it costs 1/3 lawn
Brenda bakes 9 cakes a day
OR
mows 3 lawns
Opportunity Cost
Who has the comparative advantage in lawn production?
Brenda because 1/3 is less than 1/2
Billy because 2 is less than 3
PPF for Billy
LAWNS
CAKES
LAWNS
CAKES
CAKES
LAWNS
International Trade
A. Global Economy
B. Global Trade
Free Trade
Comparative Advantage
Absolute Advantage
Globalization
Benefits
Costs
Global Economy Visuals 1
Absolute Advantage - the condition that exists when someone can produce a good or service using fewer resources than someone else.
Comparative Advantage - the condition that exists when someone can produce a good or service at a lower opportunity cost than someone else.
MP3
3
1
1/4
Corn
12
4
1
Econoland
MP3
2
1
1/2
Corn
4
2
1
Moneyville
Econoland
Econoland
4
2
1/4
Econoland would have 1 MP3 player and 1 bushel of corn. If they had produced the MP3 player they would not have any corn. They have come out with an extra bushel of corn.
1/2
Econoland
Moneyville
4
1/2
2
4
Moneyville has 3 bushels of corn; if they had produced corn themselves they would only have 2 bushels. They have come out ahead also.
100
300
200
100
300
200
2
4
12
10
8
6
2
4
12
10
8
6
Khan Academy Video
You must:
-configure the absolute and comparative advantages for both products through math (mark with AA or CA)
-graph a PPC for each musician as well as a "collaboration" PPC with the end points (use graph paper sticky note)
-write a summary of the answer to the word problem.
Directions for Economic Word Problem:
The Beatles are preparing to record the White Album in 1968. Paul McCartney can write 5 poems or 10 musical scores a month. John Lennon can only write 8 poems or 2 musical scores. George Harrison can write 1 poem or 4 musical scores. Ringo Starr doesn't write any songs or scores.
They must have 15-20 songs (some individually written and some collaborations) to make a complete album.
Make:
Ratios with Opportunity Cost
Graph with 2 PPCs
New line for Partnership
In one month, Bucky can make 2 saddles or 10 (pairs of) boots.
His competitor, Doc, can make 8 saddles or 2 boots.
Answer these questions by marking on your information:
1. Who has the AA in boots?
2. Who has the AA in saddles?
3. Who has the CA in boots?
4. Who has the CA in saddles?
Full transcript