Economic assignment worksheet one

WS: Comparative Advantage

In this worksheet, I want you to determine Comparative Advantage by calculating the trade-off/opportunity cost. Please remember the definition of comparative advantage: the entity with the lowest opportunity cost. Also, please remember why comparative advantage important: it tells us which product each trade partner should focus on: focus on where you have comparative advantage. So review the data, complete the table, and answer the questions at the end. I will cover this worksheet in class. Or, if you are online, I will post a solution in the content area. You may need to give this worksheet an attempt first….don’t be afraid to make a mistake. Submit your worksheet into the drop box. After you have submitted a file, the solution file and corresponding lecture will become available to you. Use this information to complete a self-assessment. If you are still confused, please contact the instructor with questions. I’m here to help and want you to succeed.

Mexico USA
Labor Force 100 300
Output per Worker
Cars 6 15
Tequila 18 10

Opportunity Cost: Produce Cars Opportunity Cost: Produce Tequila
Step Mexico USA Mexico USA
1. Give up
2. Get
3. Opportunity Cost
4. Who Has Comparative Advantage (Mark With “X”
5. Who Should Produce: Cars? Who Should Produce Tequila?
“Mark with “X””

QUESTIONS
1. Who has the absolute advantage in producing cars? How can you tell?

2. Who has the absolute advantage in producing tequila? How can you tell?

3. Who has the comparative advantage in producing cars? How can you tell?

4. Who has the comparative advantage in producing tequila? How can you tell?

5. Should the two countries trade? Why or why not?