Econowaugh AP: 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.