Terrific Tuesday, August 28 Wonderful Wednesday, August 29 Warm up: Create a separate index card for each of the following terms: (1) production

Transcription

1 Terrific Tuesday, August 28 Wonderful Wednesday, August 29 Warm up: Create a separate index card for each of the following terms: (1) production possibilities curve/frontier (include definition, assumptions and sample graph); (2) factors of production; (3) normative and positive statements. Learning target: I can describe what factors can cause economic growth as reflected in an outward shift of a PPC. I can explain the benefits of specialization and gains from trade. Unit 1a summative test on Thurs, Sept 6 and Friday, Sept 7. Study guide posted on Verge and on html

2 Let s take a little quizzie poo...

3 PPC Practice Draw a PPC showing changes for each of the following: Pizza and Computers (3) 1. New computer making technology 2. Decrease in the demand for pizza 3. Mad cow disease kills 85% of cows Consumer goods and Capital Goods (4) 4. Destruction of power plants leads to severe electricity shortage 5. Faster computer hardware 6. Many workers unemployed 7. Significant increases in education 3

4 Computers Question #1 New computer making technology A shift only for computers. Pizzas 4

5 Question #2 Computers Decrease in the demand for pizza The curve doesn t shift! A change in demand doesn t shift the curve. Pizzas 5

6 Computers Question #3 Mad cow disease kills 85% of cows A shift inward only for Pizza. Pizzas 6

7 Capital Goods (Guns) Question #4 Destruction of power plants Decrease in resources = decrease production possibilities for both. Consumer Goods (Butter) 7

8 Capital Goods (Guns) Question #5 Faster computer hardware Quality of a resource improves = shifting the curve outward. Consumer Goods (Butter) 8

9 Capital Goods (Guns) Question #6 Many workers unemployed The curve doesn t shift! Unemployment is just a point inside the curve. Consumer Goods (Butter) 9

10 Capital Goods (Guns) Question #7 Significant increases in education The quality of labor is improved. Curve shifts outward. Consumer Goods (Butter) 10

11 Specialization and Trade Why do people trade? 11

12 Why do people trade? 1. Assume people didn t trade. What things would you have to go without? Everything you don t produce yourself! (Clothes, car, cell phone, bananas, healthcare, etc.) The Point: Everyone specializes in the production of goods and services and trades with others. 2. What would life be like if people in cities couldn t trade with people in other cities or people in states couldn t trade with people in other states? Limiting trade would reduce people s choices and make people worse off. The Point: More access to trade means more choices and a higher 12 standard of living.

13 What could you live without?? If we did not import these goods, what would happen? 13

14 Specialization Activity Round 1: Draw as many houses as you can with your right hand in 40 seconds. Round 2: Draw as many cars as you can with your left hand in 40 seconds. What is your opportunity cost for each house? What is your opportunity cost for each car? How might right-handed students and left-handed students specialize and trade? 14

15 Absolute and Comparative Advantage 15

16 Per Unit Opportunity Cost Review = Opportunity Cost Per Unit Opportunity Cost Units Gained Assume it costs you $50 to produce 5 t-shirts. What is your PER UNIT cost for each shirt? $10 per shirt Now, take money out of the equation. Instead of producing 5 shirts you could have made 10 hats. 1. What is your PER UNIT OPPORTUNITY COST for each shirt in terms of hats given up? 1 shirt costs 2 hats 2. What is your PER UNIT OPPORTUNITY COST for each hat in terms of shirts given up? 1 hat costs 1/2 shirt 16

17 Per Unit Opportunity Cost Review Ronald McDonald can produce 20 pizzas or 200 burgers Little Caesar can produce 100 pizzas or 200 burgers. In practice set. What is Ronald s opportunity cost for one pizza in terms of burgers given 1 pizza cost 10 burgers up? What is Ronald s opportunity cost for one burger in terms of pizza given 1 burger costs 1/10 pizza up? What is Caesar s opportunity cost for one pizza in terms of burgers given 1 pizza costs 2 burgers up? What is Caesar s opportunity cost for one burger in terms of pizza given 1 burger costs 1/2 pizza up? Ronald has a COMPARATIVE ADVANTAGE in the production of burgers. Caesar has a COMPARATIVE ADVANTAGE in the production of pizza. 17

18 Absolute and Comparative Advantage Absolute Advantage The producer that can produce the most output OR requires the least amount of inputs (resources). Ex: Caesar has an absolute advantage in pizzas because he can produce 100 and Ronald can only make 20. Comparative Advantage The producer with the lowest opportunity cost. Ex: Ronald has a comparative advantage in burgers because he has a lowest PER UNIT opportunity cost. 18

19 Thorough Thursday, August 30 Freelance Friday, August 31 Talk with your neighbor about the following; write down what you are unsure of. Explain how you would use the concept of opportunity cost in everyday life. Differentiate between increasing and constant opportunity cost PPCs. Explain why the Law of Increasing Opportunity Cost occurs. Explain how you calculate PER UNIT opportunity cost. Explain difference btw productive and allocative efficiency the PPC. Identify the 3 Shifters of the PPC. Give 2 SPECIFIC scenarios that would shift a PPC outward (Use Pizza and Robots). List 10 types of Soda.

20 Thorough Thursday, August 30 Freelance Friday, August 31 Learning target: I can explain the benefits of specialization and gains from trade. I can determine absolute and comparative advantage and I can calculate terms of trade. Unit 1a summative test next Thursday, September 6 and Friday, September 7. Study guide posted on Verge and on html

21 Absolute and Comparative Advantage Countries should specialize in the good that is cheaper for them to produce (the one for which they have a comparative advantage) and trade for other goods and services. International trade is based on comparative advantage.

22 Benefits of Specialization and Trade 22

23 Wheat Sugar USA 30 (1W costs 1S) 30 (1S costs 1W) Brazil 10 (1W costs 2S) 20 (1S costs 1/2W) Which country has a comparative advantage in wheat? Sugar (tons) Sugar (tons) Wheat (tons) Wheat (tons) 23

24 Wheat Sugar USA 30 (1W costs 1S) 30 (1S costs 1W) Brazil 10 (1W costs 2S) 20 (1S costs 1/2W) Which country has a comparative advantage in wheat? 1. Which country should EXPORT Sugar? 2. Which country should EXPORT Wheat? 3. Which country should IMPORT Wheat? 24

25 See practice Qs: U.S./Brazil Japan/Canada

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27 2008 Audit Exam

28 See practice Qs/ See the cow...

29 Output Questions: OOO= Output: Other goes Over 29

30 2008 Audit Exam

31 See practice Qs

32 Input Questions (The variable is resources or time) IOU= Input: Other goes Under 32

33 Terms of Trade (or real exchange rate ) Both countries can benefit from trade if they each have relatively lower opportunity costs. Terms of Trade- The agreed upon conditions that would benefit both countries. Ex: Trade 1 ton of wheat for 1.5 tons of sugar 33

34 See practice Qs

35 Pineapples Kenya 30 India Radios Who has an absolute advantage in Radios? What is the cost of one radio for India? What is the per unit opportunity cost for 1 pineapple for Kenya? Who has a comparative advantage in pineapples? Who has a comparative advantage in radios? Who should import pineapples? Trading 1 radio for how many pineapples would benefit both countries?

36 Pineapples Radios Kenya 30(1P costs 1/3R) 10 (1R costs 3 P) India 40 (1P costs 1R) 40 (1R costs 1P) Kenya wants Radios If the terms of trade for 1 radio is greater than 3 pineapples then Kenya is worse off and should make radios on their own. India wants Pineapples If the terms of trade for 1 radio is less than 1 pineapple then India is worse off and should make pineapples on their own. What terms of trade benefit both countries?

37 Pineapples Radios Kenya 30(1P costs 1/3R) 10 (1R costs 3 P) India 40 (1P costs 1R) 40 (1R costs 1P) Trading 1 radio for 2 pineapples will benefit both. If Kenya produces radios by themselves, they give up 3 Pineapples for each radio. If they can trade 2 pineapples for each radio they are better off. If India produces pineapples by themselves, they give up 1 pineapple for one radio. If they can get 2 pineapples for one radio they are better off. The countries trade at a lower opportunity cost

38 International Trade Trade: 1 Wheat for 1.5 Sugar USA Brazil 30 The US Specializes and Brazil Makes makes ONLY Wheat 25 ONLY Sugar Sugar (tons) W Sugar (tons) S Wheat (tons) Wheat (tons) S W

39 International Trade TRADE SHIFTS THE PPC! USA 45 Brazil AFTER TRADE Sugar (tons) Sugar (tons) Wheat (tons) AFTER TRADE Wheat (tons) 39

40 2008 Audit Exam

41 2012 Audit Exam

42 2012 Audit Exam

43 2008 Audit Exam 43

44 Comparative Advantage Practice Create a chart for each of the following problems. First- Identify if it is a output or input question Second-Identify who has the ABSOLUTE ADVANTAGE Third-Identify who has a COMPARATIVE ADVANTAGE Fourth- Identify how they should specialize 1. Sara gives 2 haircuts or 1 perm and hour. Megan gives 3 haircuts or 2 perms per hour. 2. Justin fixes 4 flats or 8 brakes per day. Tim fixes 1 flats or 5 brakes per day. 3. Hannah takes 30 minutes to wash dishes and 1 hour to vacuum the house. Kevin takes 15 minutes to wash dishes and 45 minutes to 44 vacuum.

45 Input or Output Question? Number caught per day Deer Henry John Canada Japan Henry John 4 24 Antelope 6 12 Months to produce one Car Acres to produce 100 bushels Corn Plane Rice 45

46 Absolute Advantage? Number caught per day Deer Henry John Canada Japan Henry John 4 24 Antelope 6 12 Months to produce one Car Acres to produce 100 bushels Corn Plane Rice 46

47 Comparative Advantage? Number caught per day Deer Henry John Canada Japan Henry John 4 24 Antelope OOO 6 12 Months to produce one Car Acres to produce 100 bushels Corn Plane IOU Rice IOU 47

48 Comparative Advantage? Number caught per day Henry John Canada Japan Henry John Deer 4 (1D=3/2A) 24 (1D=1/2A) Antelope 6 (1A =2/3D 12(1A=2D) Months to produce one Car Acres to produce 100 bushels Corn OOO Plane IOU Rice IOU 48

49 Comparative Advantage? Number caught per day Henry John Canada Japan Henry John Deer 4 (1D=3/2A) 24 (1D=1/2A) Antelope 6 (1A=2/3D) 12 (1A=2D) Months to produce one Car Plane 8 (1C=4/5P) 10 (1P=5/4C) 15(1C=5/4P) 12 (P=4/5C) Acres to produce 100 bushels Corn OOO IOU Rice IOU 49

50 Comparative Advantage? Number caught per day Henry John Canada Japan Henry John Deer 4 (1D=3/2A) 24 (1D=1/2A) Antelope 6 12 Months to produce one Car Plane 8 (1C=4/5P) 10 (1P=5/4C) 15(1C=5/4P) 12 (1P=4/5C) Acres to produce 100 bushels Corn Rice 9 (1C=3R) 3 (1R=1/3C) 8 (1C=4R) 2 (1R=1/4C) OOO IOU IOU 50

51 In the News: Trade Read the New York Times article linked below. Why might countries with open trade grow faster than countries that don t trade? Who wins and loses from a trade war? Do you agree or disagree with the author s conclusions?