Monday, September 5, 2016

Determining Comparative Advantage the "Easy Way'.

One of the hardest concepts for students (and teachers!) in the beginning of an economics course is Comparative Advantage. Specifically, determining the Opportunity Costs and then figuring out which country has the Comparative Advantage in the production of a good.

I think the confusion lies in the requirement that we look at the Opportunity Costs of producing one good in terms of the other, i.e. "the Opportunity Cost of producing 1 bushel of Corn is .5 bushels of Wheat".

I believe I have a "fail-proof" method that shows students who are having a hard time with the concept how to get the right answer EVERY TIME.

The slides below represent the second step in the process of determining Comparative Advantage.  If you are not sure how these were established go HERE for that explanation.

I will do a follow-up to this presentation, using this example, to show how acceptable "Terms of Trade" are determined in order for trade to be advantageous to both parties.

View My Stats