Inflation (winners & losers) Cheat Sheet
Monday, August 31, 2020
Friday, August 28, 2020
Comparative Advantage (Input) Problem 1995 Step by Step
Comparative Advantage (Input) Problem 1995
1. Determine - if it an Output or Input problem?
2. Draw a Graph/PPC - of the problem.
3. Recognize - who has Absolute Advantage?
4. Compute - Comparative Advantage?
5. Redraw the Table - (if needed) with people/countries on the left and goods on the top.
6. Do the math - Input problem so the math is (Under).
7. Find/ Mark/Bubble in the right answer.
8. Dirty quick method - Cross Multiply after arranging the Table correctly and find the smaller number.
9. Go back and check - to make sure you did everything right
1995
1. Determine - if it an Output or Input problem?
Input questions have (1 unit of X) as what is produced, that can be (1 ton of wheat) or (one pair of shoes) or in this instance (1 unit of food) or (1 unit of clothing)
What are variable are the resources used in producing the (1 unit of food) .
Output problems - inputs/resources used in production of the good are (fixed/equal resources) the amount actually produced is (variable)
Lets say it a different way.
In the above question – Country X used 20 resources to produce (1 unit of food) while Country Y used 10 resources to produce (1 unit of food).
The resources used to produce are (different/variable) while what is produced is fixed (1 unit of food) so this is an Input Problem.
Lets say it a different way.
If what goes in is variable it's an Input problem
If what comes out is variable it's an Output problem
2. Draw a Graph/PPC - of the problem.
3. Recognize - who has Absolute Advantage?
As it is an input problem Country Y is the most efficient and has absolute advantage in producing both Food and Clothing.
Lets say it as simply as possible:
If it’s an Output problem who ever produces the most has absolute advantage but if it’s an input problem who ever produces using the least resources has absolute advantage.
In this Input problem Country Y has absolute advantage in food and clothing as it can produce both goods using the least amount of resources.
4. Compute - Comparative Advantage?
It's an Input problem so Input problems the math is Under
after moving the numbers under you need to divide.
Then look in the columns and recognise whoever has the lowest opportunity cost
is who should produce the good as they can produce it with the lowest
amount of resources used.
7. Find/ Mark/Bubble in the right answer.
8. Dirty quick method - Cross Multiply after arranging the Table correctly and find the smaller number for an Input problem.
9. Go back and check - to make sure you did everything right
Comparative Advantage Output Problem (1990) Step by Step
Comparative Advantage Output Problem (1990)
1. Is it an Output or Input problem? (This is always the first question!)
How do we know this is an Output problem, the amount of production (output) is variable based on the productive ability between England & Portugal, while the resources that go into the production of the goods are fixed (unit of labor input).
Output problems - inputs/resources used in production of the good are (fixed/equal resources) the amount actually produced is (variable)
Input problems – inputs/resources used in production of the good is (variable) the amount actually produced is (fixed).
Lets say it a different way
Portugal using 1 unit of labor can produce 24 cloths while England using 1 unit of labor can produce 20 cloths respectively.
Both are using equal resources (1 unit of labor input) to produce but the Production or output of cloth is variable (England 20 compared to Portugal of 24).
Lets say it a different way
If what goes in is variable it's an Input problem
If what comes out is variable it's an Output problem
2. Draw a Graph/PPC of the problem.
Notice that since it is an Output problem Portugal can produce more of both goods compared to England.
3. Who has Absolute Advantage?
In this Output problem Portugal has an Absolute advantage in the production of both goods as it can produce more in comparison with England using equal resources.
4. Who has a comparative advantage?
5. Redraw the table (if needed) with people/countries on the left and goods on the top.
6. It’s an Output problem so the math is OVER.
It's an Output problem so in Output problems the math is Over
after moving the numbers over you need to divide.
Then look in the columns and recognise whoever has the lowest opportunity cost
is who should produce the good as they can produce it with the lowest
amount of resources used.
Super quick way to find
Comparative Advantage for Output Problems
8. Cross Multiply after arranging the Table correctly and find the larger number.
9. Go back and check to make sure you did everything right
