Economics: Happy FridaySeptember 2, 2011 HOT ROC:

Talk to your seatmates about your senior year using the vocabulary we have used these first three weeks:

·advantage·allocation·circular flow of the economy·cost-benefit analysis·consumer·economics·economic interdependence·efficiency·factors of production·opportunity cost (TINSTAAFL)·producers·scarcity·specialization·utility

Efficiency

When the production of a good or service allocates the factors of production with little or no waste.

Where is efficiency indicated on the Production Possibilities Frontier graph?

Productivity

A measure of the efficiency with which goods and services are produced, stated as a ratio of output per unit of input (of the FOP).

output

What does this formula mean? productivity = input What number do you want to be highest and what number do you want to be lower? Why?

Specialization

The development of skills or knowledge in one aspect of a job or field.

What are some examples of specialization in your life?

Trade

How does trade make us wealthier?

Economic InterdependenceWhen one depends on another for goods and services they want.

What are the pros and cons of Economic Interdependence?

September 6, 2011Objective: Develop a foundational understanding of and ability to apply core economic terms and concepts.Content: Absolute and Comparative AdvantageSkills: Application, Critical thinking, Participation

Essential question: What, how, and for whom?

Agenda:1) Absolute and Comparative Advantage: Farm Family activity and birdhouse production2) Comparative advantage in a global marketplace

HW: for the Block day: Complete your reading of Ch. 3 Optional reading guide available online.Watch and listen to President Obama's speech. Complete the guided listening by Thursday September 15, 2011

Economic Interdependence

Occurs when a nation engages in trade with other nations for factors of production or goods and services. A nation will make this choice when another nation has greater resources and is more efficient at production (absolute advantage) of a good or service. A nation will also make this choice when another nation has a lower opportunity cost (comparative advantage) when producing a good or service.

Absolute and Comparative Advantage

1) In the Farm Family activity, did anyone have absolute advantages?

2) Did anyone have comparative advantages?

3) How did opportunity costs help you identify either kind of advantage?

Gary and Joanne have started a part-time business, building and selling wooden birdhouses. The chart below describes Gary and Joanne’s building and painting abilities:

Building (1 birdhouse)

Painting (1 birdhouse)

Joanne 1 hour 2 hours

Gary 2 hours 3 hours

1. Who has the absolute advantage in building a birdhouse? Why?

2. Who has the absolute advantage in painting a birdhouse? Why?

3. Who has the comparative advantage in painting a birdhouse? Why?

Building (1 birdhouse)

Painting (1 birdhouse)

Joanne 1 hour 2 hours

Gary 2 hours 3 hours

1. Who has the absolute advantage in building a birdhouse? Why?

Joanne - she can build a birdhouse in 1 hour while it takes Gary 2 hours to build a birdhouse.

2. Who has the absolute advantage in painting a birdhouse? Why?

Joanne – she can paint a birdhouse in 2 hours while it takes Gary 3 hours to paint a birdhouse.

3. Who has the comparative advantage in painting a birdhouse? Why?

3. Who has the comparative advantage in painting a birdhouse? Why?

In the 2 hours it takes Joanne to paint 1 birdhouse, how many birdhouses could Joanne have built?

2 hours painting /1 hour building = 2/1= 2 birdhouses2 built birdhouses is the opportunity cost of Joanne painting a birdhouse.

In the 3 hours it takes Gary to paint 1 birdhouse, how many birdhouses could Gary have built?

3 hours painting / 2 hours building =3/2= 1.5 birdhouses1.5 birdhouses is the opportunity cost of Gary painting a birdhouse.

Gary has lower opportunity cost when painting, so he should paint birdhouses.Gary has the comparative advantage.

3. Who has the comparative advantage in painting a birdhouse? Why?

Gary – it takes him longer to paint a birdhouse but comparative advantage is based on what the opportunity cost is which would be the number of birdhouses that would not be built if both Gary and Joanne painted them.

To calculate you divide the # of hours painting by # of hours building:

Gary = 3hrs/2hrs = 1.5 birdhouses not being built – lower opportunity cost = comparative advantage

Joanne = 2hrs/1hr = 2 birdhouses not being built

4. Explain how the work should be divided between Gary and Joanne. Use efficiency, absolute advantage, comparative advantage, opportunity cost and specialization in your response.

4. Explain how the work should be divided between Gary and Joanne. Use efficiency, absolute advantage, comparative advantage, opportunity cost and specialization in your response.

Joanne enjoys absolute advantage over Gary in both aspects of birdhouse production. Being mindful of comparative advantage however, they can use specialization to increase their efficiency. Specifically, Joanne should do all the building and Gary all the painting because Gary’s opportunity cost for painting is lower than Joanne’s and so more birdhouses can be built and painted.

The Factors of Production & Comparative Advantage

Objective: To examine how comparative advantage leads to specialization and trade in a global market place given the problem of scarcity.

Directions: Descriptions of four nations and four goods are provided. Read the descriptions of each nation, and then match the good with the nation that would be best suited to produce it. Write your answer to each question in your notebook after consulting with your colleagues. Be prepared to explain your response with the class.

Nations

· Nation A has traditionally been an agricultural nation. In the past, it was important to have large families to work the farms. Therefore, Nation A has a huge population. The current government wants to diversify the economy by attracting foreign investment. However, the government is not sure what type of industry would want to relocate to Nation A

· Nation B is a remote nation in the middle of a dense jungle. There are no universities and the public education system only continues through the 8th grade. However, Nation B is filled with natural resources including untapped mines and huge forests.

· Nation C is the computer capital of the world. Almost all innovations in computer hardware, software and design originate in Nation C. However, Nation C is a small island and therefore has small population and very few natural resources.

· Nation D has very few government restrictions. The government refuses to interfere with the business transactions that take place. Entrepreneurs are not restricted from establishing new businesses, since there are very few regulations or laws.

Goods

· Orbiting weather satellites· Experimental leukemia drug· Hand woven place mats· Log cabin kits

Who Should Produce Which Product? (Who had what comparative advantage?)

Be sure to indicate what role factors of production play in your decision.

1. Nation A should produce __________________ because_______________

________________________________________________________________

2. Nation B should produce __________because________________________

_________________________________________________________________

3. Nation C should produce ___________________because________________

__________________________________________________________________

4. Nation D should produce ___________________because_________________

__________________________________________________________________

What are the pros and cons of Economic Interdependence?

Who Should Produce Which Product?

1. Nation A should produce: hand woven place matsBecause Nation A has comparative advantage in labor. Hand woven place mats are a labor-intensive good

2. Nation B should produce: log cabin kitsBecause Nation B has a comparative advantage in natural resources. Log cabins require large amounts of wood, a natural resource.

3. Nation C should produce: orbiting weather satellitesBecause Nation C has a comparative advantage in capital and human capital, both necessary for satellite production

4. Nation D should produce: experimental leukemia drugBecause Nation D has a comparative advantage in entrepreneurship. Its political system is conducive to risk-taking which is necessary for experimental drug production

What are the pros and cons of Economic Interdependence?