Unit 7 Absolute vs comparative + Foreign exchange


*Absolute advantage
Who can produce the same output with fewer resources
-Example: papa johns can produce more pizzas than McDonald’s
Image result for absolute advantage

*Comparative advantage
Who can produce the product with the lowest opportunity cost.

*Means of measurement:::::::

*Output: 
Tons per acre, miles per gallon, words per minute, apples per tree, and computers produced per hour
-When looking at an output problem, you’re looking at what they give up over what they produce

*Input
Number of hours to do a job, number of gallons of water to fill a pool and number of acres to feed a cow.

*Balance on Goods and services
Goods exports+service exports-goods imports+service imports

*The formula for the balance of trade
Good exports+good imports

*Capital account
Foreign purchase of assets+US purchases of assets

*Foreign exchange
Buying and selling of currency.

Image result for appreciation of money




*Appreciation
A strong dollar, the dollar buys more of another currency and results in less expensive imports and more expensive exports. Will always lead to a trade deficit, and imports will increase because they are cheaper.



Image result for depreciation of money


*Depreciation
Weaker dollar, buys less of another currency, results in more expensive imports and less expensive exports.

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