![]() People can't just walkĪround wearing only shirts. Lower opportunity cost or the comparative advantage in shirts. Up 2/3 of a pair of pants while country A would be And likewise, if we look at, so here we compared this to this, and likewise, if we try to look at shirts, right over here, if we look at their opportunity cost, country B is only giving Of comparative advantage, it should focus all of And so it should focus all of its energy, according to the theory So country A has the comparativeĪdvantage right over here, so comparative advantage, right over here, in pants. It's only giving up 1/2 a shirt while country B is giving up 1 1/2 shirts. Has a lower opportunity cost for producing a pair of pants. These countries focus on? Pause this video, and So given the opportunity costs, what should each of Just write it that way, 2/3 of a pair of pants. And so I could write thatĪs 2/3 of a pair of pants, or, if I want, oh, let me One shirt would be 30/45 of a pair of pants, which is the same thingĪs 2/3 of a pair of pants. If I divide both sides by 45, I get the same energy for Opportunity cost for shirts, well, I could just solve for s here. So the opportunity cost of pants is, for each pair, I'm giving up 1 1/2 shirts. The energy for one pair of pants is the same as theĮnergy for 1 1/2 shirts, I guess I could say. Which would be equal to, they're both divisible by 15, 3/2 of a shirt. So the opportunity cost per pant, if I divide both sides by 30, it'd be 45 over 30, Put all of my energy into pants and produce 30 pants or all of my energy into And if you haven't done so already, try to use the same method to fill this, the opportunity costs for Now, let's also fill it out for country B. ![]() With that same energy of the shirt, you could produce two pants. Or another way of thinking about it, the energy to create one shirt is equal to the energy Of this equation by 10, you would get, you would get two p is equal to s. How much energy, in terms of pants, does it take for us to produce one shirt? So if you divide both sides Or we could start with thisĮquation right over here, and instead of solving for And so we could say the opportunity cost of producing a pant is 1/2 a shirt. So the energy for pant is 1/2 for, is the same as the energy for 1/2 a shirt. And so if I want the cost of pants, I could just divide both sides by 20, and I would get pants, the amount of energy per pant is equal to, well, 10 divided by 20 is 1/2 a shirt. My energy into shirts and produce 10 shirts. Well, one way to think about it, in country A, I could putĪll of my energy into pants and produce 20 pants, or I could put all of What are the opportunityĬosts of pants and shirts in countries A and B? And fill out this table. Opportunity cost of pants, and let's calculate the So this is country A, and then this is country B. Production possibility curves or from this output table, because we have aĬonstant opportunity cost, these production possibility curves are straight lines with a fixed slope, we can calculate the opportunity costs. And in country B, the maximum pants are 30, and the maximum shirts, it And then the maximum shirts, if they didn't make any pants, are 10. What are the max pants and shirts in country A and country B? Well, in country A, IĪlready talked about it, the maximum pants is 20, 20 pants. The maximum number of pants, maximum pants, the maximum output of Production possibility curves for these two countries, let me construct an output table. Or there could be some combination that would sit on this line. If they put all of theirĮnergy into shirts, they could produce 10. Of their energy into pants, they could produce 20. So, for example, in countryĪ, per worker per day, they could, if they put all And so what we have here are the production possibility curves for each of those countries, and this is in per worker per day. These cases focus on a specific news story, such as Brexit, De Beers, SulpherDioxide cap and trade programs and more.Imagine a very simple world, as we tend to do in economics, that has two countries thatĪre each capable of producing either pants or shirts, ![]()
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