Unit 1 : Microeconomics Visual 1.4National Council on Economic Education http://apeconomics.ncee.net

Absolute Advantage andComparative Advantage

•ABSOLUTE ADVANTAGE One nation can produce more output with the same resources as the other.

•COMPARATIVE ADVANTAGE One nation can produce a good at a lower opportunity cost than the other.

•EXAMPLES OF COMPARATIVE ADVANTAGE Lawyer and secretary Doctor and nurse

Unit 1 : Microeconomics Visual 1.3National Council on Economic Education http://apeconomics.ncee.net

The Circular Flow of Resources,Goods, Services and Money Payments

Unit 1 : Microeconomics Visual 1.2National Council on Economic Education http://apeconomics.ncee.net

Possibilities Curve Production

Unit 1 : Microeconomics Visual 1.1National Council on Economic Education http://apeconomics.ncee.net

The Economic Way of Thinking

• Everything has a cost.• People choose for good reasons.• Incentives matter.• People create economic systems to• influence choices and incentives.• People gain from voluntary trade.• Economic thinking is marginal thinking.• The value of a good or service is affected by• people’s choices.• Economic actions create secondary effects.• The test of a theory is its ability to predict• correctly.

Unit 1 : Microeconomics Visual 1.5National Council on Economic Education http://apeconomics.ncee.net

Determining ComparativeAdvantage (Output Method)

1. Which nation has an absolute advantage in producing CDs?

2. Which nation has an absolute advantage in producing beef?

3. Which nation has a comparative advantage in producing CDs?

4. Which nation has a comparative advantage in producing beef?

5. Should Japan specialize in CDs or beef?

6. Should Canada specialize in CDs or beef?

Unit 1 : Microeconomics Visual 2.1National Council on Economic Education http://apeconomics.ncee.net

Changes in Demand and Quantity Demanded