Comparative and Absolute Advantage

Absolute Advantage means that a country can produce more product with the same amount of inputs.

In the illustration at the right you can see that with one hour of time Abba has the absolute advantage in both fish and figs because it can produce more of both products in one hour than Zarin can produce.

1. How many fish can Abba produce in one hour?
2. How many fish can Zarin produce in one hour?
3. How many figs can Abba produce in one hour?
4. How many figs can Zarin produce in one hour?
5. Who has the comparative advantage in fish? Explain.
6. Who has the comparative advantage in figs? Explain.
7. Should the two nations trade or not? Explain.

Before you try to answer these questions in the comments section of this blog, watch the Khan Academy video below. It does an excellent job of explaining how it may still make sense to trade even if one country has the absolute advantage in both products. (You may have to watch it more than once to be able to apply the concepts in the video to the Abba and Zarin situation.)

Comparative and Absolute Advantage video

Comparative Advantage

We have learned that trading between nations is beneficial to both countries if the countries have a comparative advantage in different products. The "comparative advantage" means that one country has a lower opportunity cost for that product when compared to the opportunity cost of its trading partner. (Recall our Fish and Coconut example.)

This video from Khan Academy further explores this concept by using production possibility frontiers to illustrate comparative advantage. After watching the video, please post a comment summarizing the main points presented in the video and your opinion regarding whether or not the video was helpful in clarifying your understanding of this topic.

Comparative Advantage Video

Accounting vs. Economic Profit

Welcome to a new semester of Economics. We are currently studying the basics of the Free Enterprise System. One of the most important characteristics of a free enterprise system is the profit incentive which we have discussed in class. In our class discussions we did not get into the difference between accounting profit and economic profit. Therefore, I would like to offer you an extra credit enrichment opportunity. Click on the link below to watch the following video and post a comment summarizing what you learned about this topic for up to 5 extra credit points.

Economic Profit vs. Accounting Profit

Test MP3 File

Test MP3 File

I want to be a Podcaster . . .

I'm sure that you would all like to hear your Econ Teacher as well as read the posts. ;)

After you click on the link below, you will have to click on the name of the podcast "Test Podcast" then click open when prompted.

Test Podcast

Understanding the Unemployment Rate

This week we will be trying to understand the nation's unemployment rate. How is it calculated? How can a falling unemployment rate actually signal bad news for the economy? Watch the Khan Academy video and read the discussion below the video on the Khan Academy website to discover some really interesting information about the unemployment rate!

Unemployment Rate Primer
 

Record your new insights below for the all important Extra Credit . . .

Welcome to "Let's Talk Econ"

Welcome to my new blog "Let's Talk Econ". I am a high school economics teacher who hopes to use this blog to introduce my students "real world economics". My intent is to occasionally write about a current event topic that has economic implications with the goal of helping my students better understand the issue and encourage them to comment and discuss the issue with their classmates.

I will also be using this blog to introduce my students to helpful websites that pertain to the topics we are covering in class.

Illustration courtesy of St. Louis Federal Reserve Bank

On this opening blog post I would like to introduce the students to the Microeconomics, Macroeconomics, and Current Economics videos that are available on the Khan Academy website. The following videos summarize what we are currently covering in class and supply some supplemental information on the supply of money which we have not discussed. It is important that these two videos be viewed in order (i.e. watch #1 before watching #2) since #2 picks up where #1 left off.

1. Monetary and Fiscal Policy
2. Tax Lever of Fiscal Policy

Using the link below, you'll find a way to subscribe to this blog, which will deliver new postings directly to your e-mail. Or you can bookmark the page for easy retrieval. I do want to hear from you, so feel free to click the comment button below to let me know what you think. I am planning to post a new blog entry around once every week, so stay tuned for my next post.