Basics of Economics – Day 5Goals: The students will1. Analyze opportunity costs to determine

a comparative advantage.2. Examine how specialization can lead to

greater productivity.3. Explore the effects of globalization on

the US economy.

Definition – a process by which individuals and businesses in any part of the world are much more affected by events elsewhere than they used to be.

Definition – the growing integration of the national economies of the world.

Globalization

Marisa and Jaheed attend MHS and are in the same economics class. Tonight’s assignment contains six math problems and three English problems for a total of nine problems. This assignment gives the students the option of working in a group or individually. MHS state championship basketball game is tonight and both students need to finish their homework before the game. Should Marisa and Jaheed work separately or together?

Group work –Globalization: Threat or Opportunity

Student English Problems

in one hour

Time per English problem

Math problems

in one hour

Time per math

problem

Marisa 4 6

Jaheed 3 4

Problem continued . . .

It takes Marisa ____ minutes to finish alone. It takes Jaheed ____ minutes to finish alone.

Consider:◦ If she spends all her time on English and none on

math, Marisa can complete four English problems in one hour. If she spends it all on math, she can complete six math problems in one hour.

◦ If he spends all his time on English and none on math, Jaheed can complete three English problems in one hour. If he spends all his time on math, he can complete four math problems in one hour.

Problem continued . . .

Answer the following questions:

◦ How long does it take Marisa to complete one problem of English?

15 minutes (60 divided by 4)

◦ How long does it take Marisa to complete one problem of math?

10 minutes (60 divided by 6)

◦ How long will it take Marisa to complete the entire assignment?

105 minutes (60 + 45)

Problem continued . . .

Answer the following questions . . .

◦ How long does it take Jaheed to complete one problem of English?

20 minutes

◦ How long does it take Jaheed to complete one problem of Math?

15 minutes

◦ How long does it take Jaheed to complete the entire assignment?

150 minutes (60 minutes + 90 minutes)

Problem continued . . .

Student English Problems

in one hour

Time per English Problem

Math problems

in one hour

Time per math

problem

Marisa 4 15 minutes 6 10 minutes

Jaheed 3 20 minutes 4 25 minutes

Completed Chart A

1. What do you notice about these numbers?Marisa can do both faster.Both students can do math faster.2. If Marisa is faster in both, why would she

work with Jaheed?If it saves time – she cannot work on both subjects at once.3. If they do share, who will do what and why?There are two economic concepts at play: comparative advantage and opportunity costs.

Discussion Questions

Opportunity costs: ◦ Whatever must be given up to obtain some item.

Comparative advantage: ◦ The comparison among producers of a good

according to their opportunity cost.

◦ Marisa and Jaheed each should specialize in the subject in which they have a comparative advantage.

Definitions

MarisaIn one hour, Marisa can complete either 6 math problems or 4 English

problems.

JaheedIn one hour, Jaheed can complete either 4 math problems or 3 English

problems.

Time to complete 6 math problems = time to complete 4

English problems.

Time to complete 4 math problems = time to complete 3

English problems.

Tradeoff: 1 English = 6/4 math, or 1.5 math

Tradeoff: 1 English = 4/3 math, or 1.3 math

Tradeoff: 1 math = 4.6 English, or .67 English

Tradeoff: 1 math = ¾ English, or .75 English

Completed Chart B

Looking at the chart, who gives up less math to complete one problem in English? In other words, who has the lowest opportunity cost of doing a problem on English?◦ Jaheed: 1 English costs him 1.3 math and costs

Marisa 1.5 math. Who gives up less English to complete one

problem of math? Or, who has the lowest opportunity cost of doing a problem of math?◦ Marisa: one math costs her .67 English and costs

Jaheed .75 English.

Consider the following implications:

Since Jaheed has the lowest opportunity cost of completing a problem of English homework, he has a comparative advantage in English.

Since Marisa has the lowest opportunity cost of completing a problem of math homework, she has a comparative advantage in math.

Each student should specialize in the subject in which they have the comparative advantage.

Conclusions

Student Comparative Advantage

Time per problem

Total time to complete subject

Marisa Math 10 minutes 60 minutes

Jaheed English 45 minutes 45 minutes

What does it all mean? Chart C

If they work together, Jaheed and Marisa can have the entire homework assignment completed in 60 minutes.

◦ Alone it would have taken Marisa 105 minutes.◦ Alone it would have taken Jaheed 150 minutes.

How much time does it take working together?

Even though Marisa could have done both assignments faster than Jaheed working alone (this is called absolute advantage), by specializing, Marisa saved 45 minutes and Jaheed saved 90 minutes.

Lesson to be learned . . .

What application does the foregoing problem have to how countries could work together for everyone’s benefit?

Think about this . . .