Worksheet 1: Understanding Comparative Advantage

Worksheet 1 Understanding Comparative Advantagename Claudia Pena Pes

Worksheet 1: Understanding Comparative Advantage Name : Claudia Pena Pesqueira Your Country : Austrailia Directions: Complete this worksheet. Suppose the US can produce 100 shirts or create 50 software programs, and that Honduras can produce 60 shirts or 20 software programs. Graph and label the production possibilities curves below for each country. Assume that the production possibilities curves are linear. (Choose ‘Insert-Shape’ and then choose the line tool to make your graphs.) Shirts Software 1. What is the opportunity cost of producing a shirt in the US, stated in terms of software programs? (Show how you calculated your answer.) 2. What is the opportunity cost of producing a shirt in Honduras, stated in terms of software programs? 3. Which country has a comparative advantage in shirt production? How do you know? 4. Go to the CIA Fact Book, Look up your country, and write down three major Exports and three major Imports Imports: 1)_______________, 2)_____________________, 3)________________ Exports: 1)_______________, 2)_____________________, 3)_________________ Sheet1 Failure Mode & Effects Analysis Instructions: Organization Name Fill in yellow areas Project Title 1=Not severe Student Name 10=Very severe Process Step/ Feature Failure Mode Severity Likelihood of Occurrence Undetectability Risk Priority Number (RPN) Action to Improve Revised Severity Revised Likelihood Revised Undetectability Revised RPN

Paper For Above instruction

The concept of comparative advantage serves as a fundamental principle in international economics, illustrating how countries benefit from specializing in the production of goods and services where they have the lowest opportunity costs. This worksheet explores the principles of comparative advantage through practical examples, graphical representations, and real-world data retrieval, fostering an understanding of economic decision-making at both national and individual levels.

First, the exercise presents a hypothetical scenario involving the United States and Honduras with different production capacities for shirts and software programs. Analyzing the opportunity costs involved in producing each good enables us to determine which country holds a comparative advantage in shirt production. The opportunity cost in economics reflects the value of the next best alternative forgone when making a decision. In this context, calculating the opportunity cost of producing one shirt in the US involves understanding the trade-off between shirts and software. Given that the US can produce 100 shirts or 50 software programs, the opportunity cost of one shirt is the number of software programs forgone, calculated as follows:

Opportunity cost of a shirt in the US = (Software programs forgone) / (Shirts produced) = 50 / 100 = 0.5 software programs.

Similarly, in Honduras, the opportunity cost of producing one shirt involves the trade-off between shirts and software programs, which can be calculated as:

Opportunity cost of a shirt in Honduras = 20 / 60 ≈ 0.33 software programs.

Since Honduras forgoes fewer software programs per shirt produced, it has a comparative advantage in shirt production. The country with the lower opportunity cost in producing a specific good is said to have the comparative advantage in that good.

Next, graphing the production possibilities frontiers (PPFs) for both countries helps visualize their respective resource limitations and trade-offs. Assuming linear PPFs, the US’s curve can be plotted with axes representing shirts and software programs, with intercepts at 100 shirts and 50 software programs. Honduras’s PPF intercepts are at 60 shirts and 20 software programs. Drawing straight lines connecting the axes to these points demonstrates the maximum possible output combinations for each country given their resources and technology.

The worksheet also prompts students to explore real-world trade data by retrieving export and import data from the CIA World Factbook. This research component emphasizes the importance of understanding a country's international trade profile, including its major exports—like commodities or manufactured goods—and major imports, such as technology or energy resources. For example, Australia’s key exports include minerals, coal, and agricultural products, while its main imports comprise machinery, vehicles, and fuels.

The overarching goal of these exercises is to develop a practical understanding of economic efficiency, specialization, and the gains from trade—principles that underpin modern global markets. By analyzing opportunity costs, drawing production possibility curves, and examining real-world data, students grasp how countries make informed choices that maximize their benefits, thereby promoting economic growth and prosperity.

References

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• Central Intelligence Agency. (2023). The World Factbook. https://www.cia.gov/the-world-factbook
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