• The PPC curve shows how much each producer can consume according to their possible productivity
• can show trade-offs between two goods, meaning that the good which will produce less opportunity costs can be determined
• In this way when comparing between two countries (or companies, individuals, etc) it is possible to determine who has comparative advantage over producing each good

• The PPC curve shows opportunity costs and how much they give up on one good while producing another good.
• It would show if an country focuses more on what it does best and less on what it does not do so well it can produce much more of the product it produces best
• When both countries focus more on what they do best and trade with each other based on these (specialization), both benefit because both will consume more of both products than they otherwise would without specialization and trade.(the graph would bend outward, which means the comsumption increases)

• When comparing the productivity of one firm or nation with that of another. The producer who has a larger amount of output or smaller number of inputs to produce a certain good is said to have the Absolute Advantage.
  • comparison according to productivity
    

• The comparative advantage is determined by comparing the advantage one might have if they specialize in a product they are good at producing and trade it for another product they may or may not be so good at producing.
  • comparison according to an opportunity cost
  • The less the opportunity cost is, the more comparative advantage he/she/it has

• Opportunity cost: whatever must be given up to get something else
• Comparative Advantage: Goods compared among producers based on the opportunity cost
• i.e. If China spends one hour producing either 50 Barbies or 2 lbs of beef

and Argentina spends one hour producing 5 Barbies or 100 lbs of beef

• Argentina has a lower opportunity cost producing beef because they lose less production of Barbies than China, thus they have the comparative advantage for beef

• The US can't produce all goods at as low of a cost as other countries
• (i.e. bananas trade w/ Ecuador in exchange for Florida oranges)
• trade allows countries to prosper, gain money from exports, gain goods from imports
• Just like individuals benefit from specialization and trade, countries do so as well. Trade can help the US focus on what it does best.

• If it is an output (i.e. # of goods produced per amount of time), the # of goods for product A becomes the numerator for good B
• = Good A / Good B in column B and Good B / Good A in column A
• compare these values for Producer #1 and Producer #2
• The Producers with the smaller value for a product has the lower opportunity cost, thus the comparative advantage for the other good

• If it is an input (i.e. # of time required to produce a certain amount of a good) the # of time (A) becomes the denominator for good B
• You place the numbers oppositely as you would do with an output method
• The one with the lower opportunity cost has the comparative advantage for the good

• He should hire a secretary. He could do his own typing, but should he? Even though he has an absolute advantage in typing, his time which is used to type is better spent conducting brain surgery which would bring him more benefit. The secretary has a comparative advantage in typing because he/she has a lower opportunity cost(giving up lesser wage compared to the surgeon)---working, in contrast to performing surgery. (this exemplifies question #10)

• John needs 9 acres to produce 100 bushels of corn, and 3 acres for 100 bushels of rice
• Jane needs 8 acres for the same amount of corn, and 2 for the rice
• Jane has the absolute advantage = needs less acres for both corn and rice
• But John has the comparative advantage in producing corn, so Jane has the comparative advantage in producing rice

• Export goods it has the comparative advantage in because it means they have a lower opportunity cost for producing the good (meaning they produce it well, and most likely a lot of it)
• export the good to import goods that they don't have the comparative advantage in producing

• economists oppose this because free trade allows countries to specialize without restraints and does not require them to become self sufficient to an extent that would harm the economy
• by specializing, each country has the chance to increase its potential and expand its economy, something that would be harder to achieve without specialization