A TEACHER GUIDE TO THE CALIFORNIA ECONOMICS STANDARDS
Author:
R. J. Charkins, Ph.D.
Professor of Economics, California State University, San Bernardino and Executive Director,
California Council on Economic Education
Writing Team:
Joanne Benjamin
President, California Association of School Economics Teachers
Tom Means
Professor of Economics and Director of the Center for Economic Education, San Jose State University
Karl Ochi
Economics Teacher, George Washington High School and winner of the 2003 National Association
of Security Dealers National Teaching Award
Editors:
Shala London
Assistant Director, Center for Economic Education, University of Kansas
Barbara Phipps
Director, Center for Economic Education, University of Kansas
Carol Smith
Educational Consultant
Design:
E Factor Media, Inc.
San Diego, California
The California Council on Economic Education expresses our appreciation to Moody’s KMV for their support
of the development of this Guide.
Table of Contents
A Teacher Guide to the California Economics Standards
INTRODUCTION
23 UNITS
Unit 1
Choice
Unit 2
Cost
Unit 3
Benefit Cost Analysis
Unit 4
Marginal Analysis
Unit 5
Exchange
Unit 6
Specialization in Production
Unit 7
The Market System
Unit 8
Buyers and Sellers
Unit 9
Market Analysis
Unit 10
More Markets
Unit 11
Human Capital
Unit 12
Incentives
Unit 13
Property Rights
Unit 14
Messed Up Markets
Unit 15
Government and Public Choice
Unit 16
Introduction to Macroeconomics
Unit 17
Reading the Economy
Unit 18
Fiscal Policy
Unit 19
Money and the Federal Reserve System
Unit 20
Monetary Policy
Unit 21
Personal finance
Unit 22
Globalization
Unit 23
An End and a Beginning
Teacher’s Guide to California
High School Economics Standards
Dear Teacher,
As you are aware, the California Board of Education approved the History/Social Science Standards in 1998. The good
news is that those Standards include a strong economics strand in the K-11 Standards and a new 12th grade course. The
high school economics course outlined in the 1998 History/Social Science Standards is different than a typical micromacroeconomics course. This guide is meant to help you recognize those differences and to suggest ways that might
help you teach the course. It may be helpful, at the outset, to suggest the goals of a high school economics course.
The goals of the new course are to empower students with:
n the skill of economic reasoning that they can apply to any decisions they make,
n an understanding of the economic system in which they participate so that they can participate more
effectively in that system, and
n an understanding of the macroeconomy so that they will understand the news that they see and hear.
To facilitate your understanding of the Standards, it may be helpful to identify the differences between the course that is
outlined in the Standards and the typical micro/macro course. How are the 1998 Standards “New?”
The Standards are aimed at students who may or may not go on to college. The goal of the course is not to give students
a heads up on the college course, but to prepare them for life. This is not a dumbing down of the course, rather it is an
attempt to provide students with economic reasoning skills that they will use for the rest of their lives. In addition, the
course is meant to give them an idea of the power that they have in the economy and the consequences of their choices.
The Standards de-emphasize the technical tools of economic analysis such as graphs and equations. While it is fine to
use graphs in teaching the course, students can have a firm conceptual understanding of economics without an ability
to manipulate the graphs. Research in economic education tells us that the graphs increase understanding for a small
portion of our students and confuse many others. In this case, the statement may be true that students understand economics until we teach it to them. The emphasis in Standards is on conceptual understanding which is sometimes more
difficult than graphical manipulation.
In this Guide, our approach has been to begin by presenting the tools of economic reasoning. The first six units help you
teach the reasoning skills. Unit One discusses scarcity, the basic economic problem, Unit Two presents choice and opportunity cost. Three is benefit/cost analysis, Four is marginalism, Five is exchange and Six is specialization in production according
to comparative advantage. Once students master these reasoning tools, they are ready to think like an economist.
The next section presents the market system as an efficient method of providing incentives to production and facilitating
exchange. The labor market is discussed as similar to other products, emphasizing the fact that students must develop a
marketable bundle of human capital in order to survive in the 21st century global economy. Market imperfections are
introduced to illustrate the fact that the perfect efficiency of markets is seldom reached. Government attempts to correct
market imperfections are presented along with government imperfections. The goal of this section is to enable students
to look at imperfect market outcomes and imperfect government outcomes and decide on an issue by issue basis which
is the better of the two. The course should not present a conservative or a liberal bias, but enable students to make
informed decisions based on their interpretation of each issue, armed with the tools of economic analysis.
The macroeconomics section does not go into great detail on the fine points of Keynesian, Monetarist, and other schools
of macroeconomic thought. It is meant to familiarize students with the macroeconomy that they will hear and read
about in the news. Optional Unit 17 is meant to prepare students who participate in the California Council on Economic
Education’s Capital Market Contest.
International is not a separate unit, but is blended into units 5, 6, 8, and 22.
The emphasis of the Standards and this Guide is on the student. We have tried to boil this down to the essentials. (If you
teach an AP class, you may find some of this useful but you will certainly not find it sufficient.) The California
History/Social Science Standards for Grade 12 Principles of Economics emphasize the most powerful messages of economics that help students survive and prosper. Students who successfully complete this course may say that it is one of
the most powerful courses they have taken in school and that they have a much better understanding of the world
around them as a result of the course.
This should be the case because students live and participate in this economy. The course is really about them. It is based
on nine economic principles.
1. People choose.
While we will get into a much more detailed discussion on this topic, people too often think in terms of needs,
which relegates them to no options and, therefore, no choice. In fact, we will make the argument that a discussion
of needs has no place in an economics course because people are always choosing. Helping students recognize
their decisions is one of the most important tasks of an economics course.
2. Every choice has a cost.
People often use the expression, “There is no such thing as a free lunch,” which flies in the face of the experience of
many students who have been eating what they consider “free” lunches for their entire school career. In this guide,
we will state it slightly differently, “There is no such choice as a free choice.” Every time a decision is made, one alter
native is selected and one is not. The one that is not selected is what the decision maker gave up. That is the cost of
the choice.
3. Benefit/cost analysis is useful.
As they progress through the school years, students make many decisions and the consequences of those decisions
become more and more important as they grow. By the time they reach high school, they are making life-shaping
decisions. It is important that they know how to use benefit cost analysis to help clarify the issues. Since benefit cost
analysis can be helpful in so many areas, it is included in the Standards from grades K through 12.
4. Incentives matter.
Students are constantly exposed to incentives. Grades are meant to act as an incentive to students. Often the grades
themselves are insufficient so parents supplement these incentives with financial ones. Many of your students have a
part-time or a full-time job. They work for financial incentive. Many of your students play a sport. They play for many
reasons including self-satisfaction, fame, glory, and perhaps an opportunity to play in college. These are all incentives. So
the concept is not new to them; you have an opportunity to show them how incentives apply in markets.
5. Exchange benefits the traders.
Many of your students throw the term “ripoff” around very casually. They often view market transactions as win/lose
situations. You have the opportunity to show them that people don’t voluntarily exchange unless they expect to
gain more than they give up. This is a new and often enlightening insight for some.
6. Markets work with competition, information, incentives and property rights.
Your students are all consumers so they are familiar with the product market. You have the opportunity to help
them identify the motivating forces behind particular markets and the constraints faced by participants on both
sides of those markets. You can point out the importance of competition and the results if competition or other
important market components are missing. You can address the concept of missing market components to help
them analyze strong social concerns such as poverty, pollution, endangered species, and others.
7. Skills and knowledge influence income.
As mentioned, many of your students are working at part-time or full-time jobs and most hope to “get a good job”
when they leave school, regardless of whether they plan to leave school at the end of 12th grade or after college.
The problem is that many fail to recognize the connection between school, skills and knowledge (human capital),
and income. This course can dramatize that connection for them.
8. Monetary and fiscal policies affect peoples’ choices.
While macroeconomics is a mystery to many people, the fundamentals taught in the high school economics course
are pretty straightforward. Understanding basic economic indicators such as changes in Gross Domestic Product, the
unemployment rate or the Consumer Price Index and the impact that those changes have on them will help students
understand the state of the economy and their position in the economy. How monetary and fiscal policies attempt to
influence these variables and the affect that those policies have on your students can be a revelation for them.
9. Government policies have benefits and costs.
In a recent national survey, over 60% of high school students thought that government would determine their
income. They had little idea of the ways in which governments (local, state, and national) influence them. Besides
monetary and fiscal policy, governments affect our students’ lives through income redistribution policies, regulation
of prices, trade policies, and government regulations. Much like a study of monetary and fiscal policy, government
action in the economy and the effects of those actions are surprising to many students.
Teaching and learning economics can be very exciting. Our hope is that you and your students have a terrific
educational experience.
Jim Charkins, Executive Director
California Council on Economic Education
GRADE 12 STANDARDS
THE STANDARDS
12.1 Students understand common economic terms and concepts and economic reasoning:
Section 1.
the causal relationship between scarcity and choice
Section 2.
opportunity cost and marginal benefit and marginal cost
Section 3.
the difference between monetary and non-monetary incentives and how changes in incentives
cause changes in behavior
Section 4.
the role of private property as an incentive in conserving and improving scarce resources,
including renewable and non-renewable natural resources
Section 5.
the role of a market economy in establishing and preserving political and personal liberty
(e.g., the work of Adam Smith)
12.2 Students analyze the elements of America’s market economy in a global setting:
Section 1.
the relationship of the concept of incentives to the law of supply and the relationship of
the concept of incentives and substitutes to the law of demand
Section 2.
the effect of changes in supply and/or demand on the relative scarcity, price and quantity
of particular products
Section 3.
the role of property rights, competition, and profit in a market economy
Section 4.
how prices reflect the relative scarcity of goods and services and perform the allocative
function in a market economy
Section 5.
the process by which competition among buyers and sellers determines a market clearing price
Section 6.
the effect of price controls on buyers and sellers
Section 7.
the role of domestic and international competition in a market economy in terms of goods and
services produced, and the quality, quantity, and price of those products
Section 8.
the role of profit as the incentive to the entrepreneurs in a market economy
Section 9.
the functions of the financial markets
Section 10. the economic principles that guide the location of agricultural production and
industry and the spatial distribution of transportation and retailing facilities
Section 12.3 Students analyze the influence of the federal government on the American economy:
Section 1.
how the role of government in a market economy often includes providing for national defense,
addressing environmental concerns, defining and enforcing property rights, attempting to
make markets more competitive, and protecting consumer rights
Section 2.
the factors that may cause the costs of government actions to outweigh the benefits
Section 3.
the aims of government fiscal policies (taxation, borrowing, and spending) and their influence
on production, employment, and price levels
Section 4.
the aims and tools of monetary policy and their influence on economic activity
(e.g., the Federal Reserve)
12.4 Students analyze the elements of the United States labor market in a global setting:
Section 1.
the operations of the labor market, including the circumstances surrounding the establishment of
principal American labor unions, procedures used to gain benefits for its members, the effect of
unionization, the minimum wage, and unemployment insurance
Section 2.
the current economy and labor market including the types of goods and services produced, types of
skills necessary, the effect of rapid technological change, and the impact of international competition
Section 3.
wage differences among jobs and professions using the laws of demand and supply and the concept
of productivity
Section 4.
the effects of international mobility of capital and labor on the U.S. economy
12.5 Students analyze the aggregate economic behavior of the United States economy:
Section 1.
distinguishing between nominal and real data
Section 2.
defining, calculating and explaining the significance of an unemployment rate, the number of new
jobs created monthly, an inflation or deflation rate, and a rate of economic growth
Section 3.
distinguishing between sort-term and long-term interest rates and explaining their
relative significance
12.6 Students analyze issues of international trade, and explain how the U.S. economy affects,
and is affected by, economic forces beyond its borders:
Section 1.
the gains in consumption and production efficiency from trade with emphasis on the main products
and changing geographic patterns of twentieth century trade among countries in the eastern
hemisphere
Section 2.
the reasons for and the effect of trade restrictions in the Great Depression compared with the
present day arguments among labor, business, and political leaders over the effects of free trade on
the economic and social interests of various groups of Americans
Section 3.
the changing role of international political borders and territorial sovereignty in a global economy
Section 4.
explain foreign exchange, how exchange rates are determined, and the effects of the dollar gaining
(or losing) value relative to other currencies (a strong or weak dollar)
Unit 6
Specialization in Production
What do you do “most better” or “least worse?”
Standards:
12.6 Students analyze issues of international trade and explain
how the U.S. economy affects, and is affected by, economic forces
beyond its borders.
• Section 1. Identify gains in consumption and production
efficiency from trade…
PRINCIPLE 5:
Voluntary exchange benefits the traders.
Introduction
In the last unit, we found one way to increase society’s wealth with no additional resources – exchange. In this unit we
will find another way to increase society’s wealth with no additional resources – specialization in production. The key
to specialization in production is comparative advantage.
Self-Sufficiency is Neither Efficient Nor Practical.
You allocate your human capital to teaching and exchange the money that you receive for other goods and services that
you want. Most people don’t make their own automobiles, computers or shoes or grow their own coffee or tea. There are
two reasons that we are not self-sufficient – it is not practical and it is not efficient. I can’t produce an automobile. I don’t
have the physical capital to do so and I don’t have the human capital (skills and knowledge to do so. It is not practical.
Were I able to complete the car, it would take a tremendous amount or resources to do so; the opportunity cost would
be very high. General Motors or Toyota can do the same thing with far fewer resources per car. We all produce some
goods or services and exchange them for other goods and services; virtually no one that I know makes everything they
consume. We all exchange. So the question is, “What should I produce in order to get the most from my scarce resources
in order to maximize my wealth?”
Identifying Absolute and Comparative Advantage
We all know people who are good at lots of things. In fact, they are so good at so many things that people often say
about them, “Is there anything Sharon can’t do? She is better at cooking, fixing things, drawing and painting, and just
about everything else, than I am.” We could also say that Sharon has an advantage in all of these productive activities over
me. Economists call this absolute advantage…an advantage in either greater outputs per unit input or fewer inputs per unit
output than another producer. But now we want to know, even though Sharon is better at all of these activities, is there
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anything to be gained by her doing some and me doing some, and then exchanging. If so, which should she do and
which should I do?
Well, she is 10 times the artist that I am. She is five times better at fixing things than I am. She is only twice as good a
teacher as I am and only about 1.25 times the better cook than I am. So, even though she is better at all four activities, it
probably makes sense that I do the teaching and cooking and she does the artwork and odd jobs. Economics would tell
us that Sharon has a comparative advantage in art and repair work and I, believe it or not, have a comparative advantage
in teaching and cooking. Comparative advantage is an advantage in opportunity cost in production of one product compared
to another product.
On sports teams, sometimes one athlete stands out as the best player in all positions. This athlete has an absolute advantage over the other players on the team in all positions. Absolute advantage compares one individual’s production capabilities to another individual’s production capabilities; how does Quinton compare to other team members at each position.
In this case, we are making the claim that he is better than other players at every position.
But he can’t play all positions. So now the question is, “In which position is he most better?” In which position is his
advantage over the other players the greatest? The coach has to decide where his comparative advantage lies, just as the
coach must decide where the worst athlete on the team has a comparative advantage, i.e. in which position does he
have an advantage compared to all other positions… where is he likely to do the least harm? The beauty of this is that
every player has a comparative advantage somewhere. Comparative advantage compares an individual’s advantage in
production of one product to another product.
Let’s take a simple example.
Below are the units of output that can be produced by two people in one day. (If you want to make this international,
say that Juan is in Argentina and Pam is in the U.S).
Output per Day
JUAN
PAM
JUAN’S
ADVANTAGE
PAM’S
DISADVANTAGE
Blankets
5
1
5
1/5
Shoes
2
1
2
1/2
Clearly Juan is better than Pam at producing both products. He has an absolute advantage over Pam in both products.
But in which product does he have a comparative advantage? The last two columns make comparative advantage very
simple. Juan has a 5 to 1 advantage in blankets and a 2 to 1 advantage in shoes. Clearly, his absolute advantage in blankets is greater than his absolute advantage in shoes He has a comparative advantage in blankets. Pam can produce only
1/5 the number of blankets but can produce 1/2 the number of shoes. Her disadvantage is less in shoes. In comparing
blankets and shoes, Pam has a comparative advantage in shoes.
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If the problem is set up in terms of inputs per output, the situation is equally simple.
Below are the units (labor hours) of input that it takes two people to produce two products.
SANJAY
SARITA
SANJAY’S
DISADVANTAGE
SARITA’S
ADVANTAGE
Dresses
2
1
2
1/2
Curry dinners
3
2
3/2
2/3
In this case, Sarita can produce a dress in 1/2 the time that Sanjay can and a dinner in 2/3 the time that Sanjay can.
Her advantage in dresses is greater than her advantage in dinners. She has a comparative advantage in dresses.
Sanjay takes twice as long to produce a dress and only 1 1/2 times as long to produce a dinner. His disadvantage is less
in dinners. His comparative advantage is in dinners.
Sarita should produce dresses and Sanjay should produce dinners.
While these examples are pretty straightforward, and help students easily identify the comparative advantage for each
person, they mask the fundamental concept of opportunity cost.
Different Opportunity Cost
If you wish to illustrate the fact that it is the opportunity cost that determines who should produce what, you can do so
with either of these examples. Let’s go back to Juan and Pam and calculate the opportunity cost of each product for each
person.
Output per Day
JUAN
PAM
Blankets
5
1
Shoes
2
1
For every 5 blankets that Juan makes, he gives up the opportunity to produce 2 pair of shoes.
5 blankets = 2 shoes
Dividing both sides of the equation by 5
1 blanket = 2/5 pair of shoes. (I blanket costs 2/5 pair of shoes.)
For every 2 pair of shoes, Juan gives up the opportunity to produce 5 blankets.
2 pair shoes = 5 blankets
Dividing both sides of the equation by 2,
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1 pair of shoes = 5/2 blanket (1 pair of shoes costs 5/2 of a blanket)
For Pam, it is easy.
For each blanket she must give up 1 pair of shoes.
For each pair of shoes she must give up 1 blanket.
Using these numbers, we can complete the table below.
Opportunity Cost
JUAN
PAM
Blankets in terms of shoes
2/5 pair of shoes
1 pair of shoes
Shoes in terms of blankets
5/2 blankets
1 blanket
Now, the opportunity cost is clear. Juan has a lower opportunity cost for blankets. He has to give up 2/5 pair of shoes to
produce a blanket, Pam has to give up 1 pair of shoes. And Pam has a lower opportunity cost in making shoes (1 blanket
vs. Juan’s 5/2 blankets). As long as their opportunity costs are different, Juan and Pam can benefit from specialization and
exchange.
The key to teaching comparative advantage is to take it step by step. Once students get it, it is very straightforward, but
before that point, it is a jumble of charts and fractions and meaningless stuff.
A much more detailed explanation is included in the appendix to this unit.
The Gains From Specialization and Exchange
One approach to illustrating the advantages of specialization in production and exchange is to use wage data. This is
simply another way of getting the main point across that people gain from specializing and exchanging. If kids get the
comparative example above, you may want to stop there.
[Optional explanation of the gains from specialization and exchange:]
Let’s put some numbers on this so we can see the gains from specialization and exchange. Assume that a cabinetmaker
is very good at making cabinets and specializes in doing that. She allocates about three hours of her human capital to
making a cabinet. Assume further that she averages about $50 per hour making and selling her cabinets. She owns a
nice home and has lawns that have to be mowed and leaves and other debris that have to be raked. It would take her
about two hours to do the yard work.
There is a teenage girl down the street who is very good at mowing lawns and raking yards and she specializes in doing
that. She allocates about three hours of her human capital to doing a fair sized yard and she charges $10 per hour. She
would like a cabinet for her bedroom and could make it herself. It would take her about 20 hours of human capital.
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The cabinetmaker is better both at making cabinets and mowing and raking than is the teenager. If the cabinetmaker is
better at both activities, is there any way that both the cabinetmaker and the teacher could benefit from specialization
and exchange? Should the economics teacher hire the teenager to mow and rake, to make cabinets, both, neither?
The question can be answered by answering another question. Even though the cabinetmaker is better at both activities,
is she “more better” at one activity than another? Does she have a comparative advantage in one activity? And does the
teenager have a comparative advantage in one activity?
HOURS TO MAKE CABINET
HOURS TO MOW AND RAKE YARD
Cabinetmaker
3
2
Teenager
20
3
Cabinetmaker advantage
over teenager
3/20 = .15
2/3 = .67
Teenager disadvantage
20/3 = 6.67
3/2 = 1.5
Yes, they do. The cabinetmaker can make a cabinet in 15% of the human capital it takes the teenager to make a cabinet
and she can do the yard work with 67% of the human capital it takes the teenager. Her advantage is greater in making
cabinets than in doing yard work. She should specialize in cabinets and hire the teenager to do her yard work. She has a
greater (or comparative) advantage in cabinets as opposed to yard work. She is “more better” in cabinetmaking than in
yard work.
But won’t the teenager get ripped off? Well, no actually. The teenager has a smaller disadvantage in yard work (1.5) compared to cabinetmaking (6.67), and so economists say that she has a comparative advantage in yard work. In comparing
yard work to cabinetmaking, her disadvantage is smallest in yard work. When discussing comparative advantage, it is
important to realize that the comparison is not between the two workers, but between the two activities. Compared to
cabinetmaking, the teenager is “less ungood” in yard work. While the language is certainly inelegant, the point is, hopefully, clear.
Let’s see who gains when both parties specialize. The table on the following page will help illustrate the situation. This
table is based on the assumptions that the cabinetmaker earns $50 per hour and the teenager earns $10 per hour.
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CABINETMAKER
TEENAGER
Time to make cabinet
20 hours
Hourly pay
$10
Cost to make cabinet
$200
Cost to buy cabinet
$150
Saving by buying cabinet
$50
Time to do yard work
2 hours
Hourly pay
$50
Cost to do yard work
$100
Cost to buy yard work
$30
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Who gains what depends upon the opportunity cost of both individuals. It will cost the cabinetmaker two hours of
human capital to mow and rake the lawn. The opportunity cost of using her human capital to do yard work is valued at
$100 since she could be using her human capital in those two hours to be making a cabinet. If she hires the teenager, it
will cost $30. It is in her best interest to specialize in making cabinets. She is ahead by $70. The teenager could build her
own cabinet, but that would take 20 hours of human capital, which is valued at $200. If she buys the cabinet, it will cost
$150. It is in the cabinetmaker’s best interest to specialize in cabinets and the teenager’s to specialize in mowing and raking. Even though the cabinetmaker is better at both making cabinets and mowing and raking, because the two have different opportunity costs, it benefits both parties to specialize and exchange. In an exchange between two parties, even if
one party is better at both activities, both parties can benefit from specialization and exchange. That is the law of comparative
advantage.
In an efficient economy, people become teachers, plumbers, carpenters, engineers or nurses if they have a comparative
advantage in that field. The more this rule is followed, the greater the efficiency of the economy and the more goods and
services society will produce from its scarce resources.
Inconsistency Between the Rhetoric, the Logic, and the Reality
A widely held belief, indeed almost a test of patriotism for some, is the mantra that it is good to buy American goods and
services. And yet many Americans drive imported cars, wear imported clothes, and listen to music and watch TV on products manufactured or assembled by foreign workers. Indeed, a test of patriotism might be to have each person who has
a “Buy American” bumper sticker check their clothes to see if they are all American made. Chances are pretty slim! The
only logical conclusion is that most Americans are not very patriotic. They talk the talk but they don’t walk the walk.
But this conclusion is not supported by economic reasoning. To follow the logic to its extreme, we wouldn’t buy
American at all; we would buy Californian. But we wouldn’t really buy Californian either; we would buy Los Angeles, or
wherever we happen to live. And then to continue the logic, we actually would not buy Los Angeles, we would buy from
ourselves to guarantee our full employment.
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As discussed above, most people are not self-sufficient. They do not make their own automobiles or computers or
movies or sound systems or telephone systems or cement mixers. They do not grow their own coffee, tea, bananas,
cocoa. They do not raise their own swordfish, buffalo, lamb, lobster, tuna or cattle. To do all of these things would be a)
very difficult, and b) very expensive in terms of opportunity cost of resources. Just as was demonstrated by the cabinetmaker and the teenage gardener, people usually specialize in production, then exchange. So we may claim to “Buy
American” but most of us don’t. And the French may claim to buy French, but most of them don’t; they buy American…
and Dutch, and Chinese, and Malaysian, and Irish, etc. The 21st century economy is a global economy. We tend to specialize in those products in which we have a comparative advantage and exchange those products for other goods and
services in which others have a comparative advantage.
Specialization changes a society in important ways. While it increases output of goods and services, it also makes us
interdependent and requires trade. Interdependence and trade sometimes create controversy, especially when specialization takes place across international borders.
Comparative Advantage Internationally
Now here’s the clincher. If specialization in production according to one’s comparative advantage works within a nation’s
borders, does it work across borders? The answer is a resounding “YES!” Specialization and voluntary exchange benefit
both parties regardless of whether they are the same nationality. National borders are “artificial” barriers that don’t repeal
the law of comparative advantage. So an American may exchange his expertise in software development for an
Indonesian’s expertise in clothing. Both parties benefit. Voluntary exchange creates wealth, both domestically and internationally.
Open trade with people in other nations provides greater opportunities for specialization in production, leading to voluntary exchange, and the resultant increase in wealth. People specializing in production and trading across national borders
results in a greater variety of products at lower cost. Some Americans drive foreign cars because they view them as having greater benefits per dollar spent. Some Americans buy foreign foods because those foods can’t be grown at reasonable cost in the United States. Some Americans buy imported clothes because they might be less expensive than U.S.
made clothes. In general, we buy foreign goods and services if we think the value per dollar spent is greater than
American products.
It is important to understand that this inflow of products from foreigners does not mean lost production (and jobs) in
America. In fact, we must import in order to export. Foreigners use the money earned from exporting products to people
in other nations to buy American products, increasing the demand for those products in which Americans have a comparative advantage. While foreign trade destroys certain jobs for Americans, it creates other jobs for us in the industries
that produce products desired by foreigners.
For example, if a worker in India has a comparative advantage in textiles and a scientist in the U.S. has a comparative
advantage in biotech engineering, then an efficient use of scarce resources will occur if both parties specialize and
exchange their products. This can only occur if neither India nor the U.S. imposes restrictions on trade between the two
individuals. When trade restrictions are imposed, world efficiency declines. In the short run, some workers will lose jobs in
America’s less efficient industries, jobs will be created in our more efficient industries if foreigners are able to buy our
products.
© California Council on Economic Education, 2005
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
6.7
The situation is no different with outsourcing of jobs to other countries, which is another form of trade. Instead of buying
goods from overseas, U.S. companies buy services from overseas. Clearly, these foreign hires replace U.S. jobs and put
some Americans out of work. Again, however, it is important to realize that foreign companies also “outsource” by using
U.S. workers, and the foreign workers who are hired use some of their income to purchase U.S. goods and services.
Attempting to stop the flow of jobs and trade leads to “trade wars” where nations whose companies are barred from
exporting to the U.S. are likely to retaliate by keeping U.S. products out of their country, causing unemployment in the U.S.
[Note: a more complete discussion of the issues involved with Globalization is presented in Unit 22.]
Drawbacks to Open Trade
Most economists will argue that open trade, where goods and services and jobs flow freely across borders, is almost
inevitable and is likely to improve the economies of all trading nations. But there is no doubt that some Americans lose
their jobs. As with all economic policies, the questions to be asked are, “Who benefits, who loses, do the benefits outweigh
the losses, and can the winners compensate the losers?”These are the questions that will be investigated in Unit 22.
For now, it is sufficient to note that, as international barriers to trade fall, workers in industries that have become less efficient relative to foreign competitors, lose their jobs when their companies close or downsize and workers in industries
that have a comparative advantage gain jobs.
Economists often advise people not to worry, because resources will simply flow into those activities in which they do
have a comparative advantage. Theoretically, of course, that is absolutely true, and, in a world of perfect competition,
workers would leave the job in which they did not have a comparative advantage on Friday, and start work in the industry in which they do have a comparative advantage on Monday.
There are two problems with this cavalier attitude -- specialized human capital and location costs. Since workers have different kinds of human capital, retraining is often required to acquire the skills and knowledge that will enable displaced
workers to compete. That retraining is costly and not always palatable to workers who have spent a good part of their
lives in a particular industry. In addition, workders may have to relocate to find new employment, and some are either
unable or unwilling to do this. The ugly truth is that opening national borders to open trade has “displacement costs” for
many workers and these are more serious for some than for others.
Exacerbating the problem is the fact that the industries in which Americans are likely to lose jobs are those that are lowskilled and labor intensive. Some agricultural products are likely to be grown overseas rather than in the U.S. The
American textile industry has suffered from open economic borders. The list could continue but the problem is that
workers in these industries are likely to be among the poorest. Open trade helps most American consumers and
American workers in capital intensive, technology intensive industries (well-educated, highly paid), and hurts workers in
labor-intensive industries. Reducing trade barriers creates new and better quality American jobs, but makes many of the
poor poorer.
The alternative, however, is also undesirable. It has been estimated that protecting U.S. automotive workers from foreign
competition costs a minimum of $90,000 per job per year. It has been pointed out that it would be cheaper to simply
pay those workers anything under $90,000 and open the borders to trade. Many different government plans have
attempted to compensate or retrain workers who can demonstrate that they have lost their jobs as a result of open trade
arrangements.
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© California Council on Economic Education, 2005
A point about comparative advantage Over time, all economies change and this causes worker displacement
with or without open trade. The industries that were the “towering heights” of the U.S. economy in 1900 are not in the
Fortune 500 today, nor will the giants of today be the leaders of tomorrow. Without these changes, we would still be driving horse drawn buggies and most of us would be on the farm. As a result of these changes, comparative advantage
changes and workers are displaced. It is an essential part of a dynamic economy but the problems mentioned above
require attention and policies that address the displacement costs. Again, the economist’s contribution is to remind policy makers to address these issues in the most efficient way possible.
Restrictions to open markets Tariffs are taxes on imported products. They make the imported product more expensive to domestic consumers, reducing the amount that domestic consumers purchase. Quotas are limits on the amount of
goods that can be imported. Other rules such as health regulations or product standards also have the result of keeping
certain foreign products out of a country. Tariffs, quotas, and regulations such as product standards are used by governments to restrict the importation of foreign products, with the intent of protecting domestic workers and industries. The
problem is that countries whose producers have been kept out of American markets are likely to retaliate by keeping
American products out of their countries. The result is worldwide protection of industries where workers are less efficient
and a loss in jobs where workers are more efficient. In addition, the trade restrictions limit the quantity and quality of
products available to consumers at the lowest possible prices. For these reasons, most economists argue strongly against
trade restrictions. We will see, however, in Unit 22, that others would argue that there are situations where protection
against open trade may be warranted.
Main Points:
n Absolute advantage compares production of two individuals, comparative advantage compares an
individual’s production of two products.
n In an exchange between two parties, even if one party is better at both activities, both parties can gain
from specialization and exchange. This is the law of comparative advantage.
n People get more from scarce resources if they specialize in those activities in which they have a
comparative advantage and exchange with others whose comparative advantages are different.
n Comparative advantage applies to both domestic and international production and exchange.
n The consumption effects of international specialization and exchange include
• wider range of alternatives
• lower price
• higher quality
• all benefits of domestic competition
• fewer goods available for domestic use.
n For the U.S., open trade will have
• positive effects on highly skilled workers who work in capital, technology, and knowledge
intensive industries, and
• negative effects on low-skilled workers in labor-intensive industries.
n International trade has significant distributive effects (some people gain and others lose), although most
economists would argue that the total gains outweigh the losses. The challenge is to find an efficient way
to compensate the losers.
© California Council on Economic Education, 2005
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
6.9
Bulletin Board Quotes:
n Self sufficiency is expensive.
n Comparative advantage means lower opportunity cost.
n Make yourself scarce!
n Low wage is not the same as low labor cost.
Learning Hurdles
Incorrect Statement
Correct Statement
Countries trade with each other.
Individuals and businesses trade with each other,
not countries.
International trade is bad for America.
Similar to domestic trade, international trade
provides greater variety and quality as well as
greater efficiency. It changes the composition of
goods and services produced in the U.S., replacing
some low skill jobs with higher skill jobs.
Outsourcing/off-shoring jobs will make the U.S.
poorer.
Similar to trade with goods and services,
outsourcing changes the composition of goods
and services produced in the U.S.
U.S. policy should be “Buy American.”
Self-sufficiency is expensive. International trade
creates wealth, domestically and internationally.
More efficient producers shouldn’t trade with less
efficient producers
Even if one producer is more efficient in two
products, both parties can benefit from
specialization in production and exchange.
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U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
© California Council on Economic Education, 2005
MULTIPLE CHOICE QUESTIONS
1.
The law of comparative advantage states that:
a. in exchange between two parties, the party that is better in all activities should engage in those activities
b. in exchange between two parties, even if one party is better in all activities both parties would benefit from
specialization and exchange
c. specialization leads to less efficiency since you can save a lot of money by producing everything on your own
d. specialization leads to less efficiency since it fails to allocate scarce resources as efficiently as possible
2.
Self-sufficiency means:
a. doing everything in a selfish way
b. using resources in the most efficient way
c. producing everything by yourself
d. producing everything in the least expensive way
3.
To determine one's comparative advantage, we should:
a. determine which activity has the lowest opportunity cost
b. determine which activity takes the least time
c. compare two workers and find who is the fastest in each activity
d. all of the above
4.
Choose the correct statement about open international trade:
a. it causes people to lose their jobs and creates higher unemployment
b. it creates less variety of products at higher prices
c. it destroys some jobs and creates others
d. both (b) and (c) are correct
Use the Table below to answer the next five questions.
Kate and Leopold are producing two goods: solving math problems and solving econ problems.
5.
KATE
LEOPOLD
KATE’S ADVANTAGE
OVER LEOPOLD
LEOPOLD’S
DISADVANTAGE
Math problems per hour
6
1
6
1/6
Econ problems per hour
4
2
2
1/2
What is Kate’s advantage over Leopold in math problems?
a. 6
b. 2
c. 1/6
d. 1/2
© California Council on Economic Education, 2005
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
6.11
6.
What is Kate’s advantage over Leopold in econ problems?
a. 6
b. 2
c. 1/6
d. 1/2
7.
What is Leopold’s disadvantage in math problems?
a. 6
b. 2
c. 1/6
d. 1/2
8.
What is Leopold’s disadvantage in econ problems?
a. 6
b. 2
c. 1/6
d. 1/2
9.
Based on the information above, which of the following statements is true?
a. Kate has a comparative advantage in econ problems.
b. Kate has a comparative advantage in math problems.
c. Leopold has a comparative advantage in math problems.
d. Leopold does not have a comparative advantage.
Answer the next five questions, based on this table.
ECON MAJOR
HISTORY MAJOR
Econ lesson
1
5
History lesson
2
4
ECON MAJOR
ADVANTAGE OVER
HISTORY MAJOR
HISTORY MAJOR
DISADVANTAGE
The table above represents the number of hours that two teachers, a college Econ graduate and a college History
graduate take to develop lesson plans.
6.12
10. What is the advantage of the econ grad over the history grad in developing econ lesson plans?
a. 5
b. 2
c. .5
d. .2
11. What is the advantage of the econ grad over the history grad in developing history lesson plans?
a. 5
b. 2
c. .5
d. .2
12. What is the disadvantage of the history grad in developing econ lesson plans?
a. 5
b. 2
c. .5
d. .2
13. What is the disadvantage of the history grad in developing history lesson plans?
a. 5
b. 2
c. .5
d. .2
14. Which of the following statements is true in terms of comparative advantage?
a. The econ grad has a comparative advantage preparing econ lesson plans.
b. The econ grad has a comparative advantage in preparing history lesson plans.
c. The history grad has a comparative advantage in preparing econ lessons.
d. The history grad does not have a comparative advantage in either.
© California Council on Economic Education, 2005
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
6.13
Answers to Multiple Choice Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
b
c
a
c
a
b
c
d
b
a
b
d
c
a
Resources
•
NCEE: “Economics in Action: 14 Greatest Hits for Teaching High School Economics”: Lesson 13 –Comparative Advantage
and Trade in a Global Economy.
•
NCEE: “Geography – Focus on Economics”: Lesson 3 –Why Nations Trade
•
NCEE: “Capstone – Exemplary Lessons for High School Economics;” Unit 7, Lesson 39,“Why Go Global?”
•
NCEE: “Capstone – Exemplary Lessons for High School Economics;” Unit 7, Lesson 40,“Why Do People Trade Across Borders?”
•
NCEE: “Capstone – Exemplary Lessons for High School Economics;” Unit 7, Lesson 41, Why People Trade:
Comparative Advantage
•
NCEE: “United States History – Focus on Economics;” Lesson 3 – Why Would You Raise Chickens When You Don’t Like Eggs?
Or Why Did Farmers Specialize?
6.14
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
© California Council on Economic Education, 2005
APPENDIX:
THE ALGEBRA OF COMPARATIVE ADVANTAGE
We saw in Unit 5 that people who specialize in the production of those goods and services in which they have a comparative advantage and exchange them for others’ products can increase their wealth. This is true for both domestic and
international exchange. In Unit 5, we saw the advantages of specialization and exchange but did not go into the algebra
used in most econ textbooks. We do so below because some schools require it and virtually every standardized test will
have a comparative advantage problem. The problem is that teaching comparative advantage to many students is possible, but takes a great deal of human capital. If you don’t have to do the fractions, our suggestion is, “Don’t!”
[Note: The process really is very simple but it can confuse students if they are not taught to take it step by step. (I
actually watched three Ph.D. economists struggle with a simple comparative advantage problem. I am embarrassed
to say that one of those was the author!) It requires some algebra but not much and it can be presented so that any
student with basic arithmetic skills can do the problems.]
[Caution: Because David Ricardo presented comparative advantage using the example of England and Portugal and
cloth and wine, textbooks use countries and discuss the comparative advantages of those countries. It is important
that students realize that, except in rare situations, countries do not produce or exchange, people do. When a
student buys a video game that was produced in Japan, it is not the United States and Japan that are exchanging, it
is the student, the U.S. buyer, and the Japanese producer who are exchanging. Within a country, there are many
individuals, each of whom has a different comparative advantage. The principle explains differences between
products and people, not nations.]
[Caution: Different textbooks (and exams) present comparative advantage in one of two ways; either they present
the data in terms of output per fixed input or in terms of input per fixed output. We will present both and then you
will have to choose which works best with your textbook. If you are preparing your students for some exam that you
do not compose, then it is probably helpful to have them recognize the difference between the two. As simple as it
sounds, tell them to be sure to read the titles in the tables. ]
Output per fixed input approach
We will begin with output per fixed input. This approach presents the amount of production that the individual can produce given a specific amount of inputs in a specific time period (ceteris paribus). The secret to these types of problems
lies in the concept of opportunity cost. What do we have to give up to gain something? To give students practice in figuring the gains from trade, let’s use a worksheet that takes them step-by-step. Then, gradually wean them from the worksheets, so that they can do these problems themselves.
Problem: Let’s assume two students, Juan and Maria, produce two products, math problems and Spanish translations of
English paragraphs. The table below illustrates the production possibilities of both people for both products. math problems and Spanish translations are the outputs; labor hours are the fixed inputs. The economics teacher asks the Spanish
and math teachers to agree to an experiment.
© California Council on Economic Education, 2005
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
6.15
[Note: the following tables put “persons” in the rows and “products” in the columns which is different from the tables
above. Since different texts do this differently, we decided to give students an opportunity to view them both ways.]
Let Diego and Maria specialize in either math or Spanish and exchange as much of their output as they wish.
Notice that Diego produces more of both goods in one hour than Maria. Can he possibly gain anything from trading
with Maria?
MATH PROBLEMS
SPANISH TRANSLATIONS
OUTPUT PER LABOR HOUR
OUTPUT PER LABOR HOUR
Diego
6
4
Maria
1
2
If they have different opportunity costs, both sides can gain from specialization and exchange. So we have to figure out
what their opportunity costs are.
There are five steps to identify the gains from trade.
Step 1. Calculate the opportunity cost of each good for each person. The table above represents the amount of each
good that each person can produce in one hour. How many math problems must Diego give up if he diverts
his labor away from math problems to get one extra Spanish translation?
To answer the question, use the data from the table above to set up a simple equation and solve for the good
we are trying to cost.
For Diego,
6 math problems = 4 Spanish translations
Dividing both sides of the equation by 6,
1 math problem = 2/3 Spanish translation
If Diego wants an extra math problem, he will have to divert his labor from producing Spanish translations. He will have
to give up 2/3 Spanish translation for each math problem he produces.
Using the data above, for Diego,
4 Spanish translations = 6 math problems
Dividing both sides of the equation by 4,
1 Spanish translation = 3/2 math problems
If Diego wants an extra math problem, he will have to divert his labor from producing math problems and he will have to
give up 3/2 math problems for every Spanish translation that he gains.
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© California Council on Economic Education, 2005
A similar exercise can be done for Maria for each product, resulting in the table below.
The table below illustrates the opportunity cost of both products for both producers.
OPPORTUNITY COST OF
ONE MATH PROBLEM
OPPORTUNITY COST OF ONE
SPANISH TRANSLATION
Diego
2/3 Spanish translation
3/2 math problem
Maria
2 Spanish translations
1/2 math problem
If Maria wants one more Spanish translation, she will have to give up 1/2 math problem.
Step 2. Identify the bargains for both people. The table above illustrates that the opportunity cost of a math problem is
lower for Diego than for Maria (2/3 Spanish translation versus 2 Spanish translations). The surprise, however, is that the
opportunity cost of Spanish translation is lower for Maria than for Diego (1/2 math problem versus 3/2 math problem.) In
terms of opportunity cost, Diego is a more efficient math problem producer and Maria is a more efficient Spanish translation producer. The rest is simple.
Step 3. Determine who should specialize in what. Clearly, Diego has a greater advantage in math problems compared to
Spanish translations, and Maria has a smaller disadvantage in Spanish translation compared to math problems. Because
their opportunity costs differ, and given the numbers above, Diego has a comparative advantage in math problems and
should specialize in the production of math problems while Maria has a comparative advantage in Spanish translation
and should specialize in the production of Spanish translation.
Step 4. Determine the price limits of exchange. The price limits are determined by the opportunity costs of production as
illustrated in the table above. Start with math problems. Maria could produce a math problem for two Spanish translations so she will not be willing to pay more than two Spanish translations for a math problem. Diego will not take less
than his cost of production, 2/3 Spanish translations.
In terms of Spanish translation, Diego could produce a Spanish translation for 3/2 math problems, so he will not pay
more than 3/2 math problems for a Spanish translation. Maria will not be willing to take less than her cost of production,
1/2 math problem.
© California Council on Economic Education, 2005
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
6.17
Step 5. Assume a price between the limits and identify the gains from trade. Assume that math problems and Spanish translations exchange at a price of 1 math problem for 1 Spanish translation. The table below illustrates the gains from trade.
PRICE OF MATH PROBLEM MINUS
PRODUCTION COST
Diego
Maria
PRICE OF SPANISH TRANSLATION
MINUS PRODUCTION COST
3/2 math problem minus 1 math
problem = 1/2 math problem gained
2 Spanish translations minus 1
Spanish translation=
1 Spanish translation gained
To produce math problems would have cost Maria two Spanish translations but she can buy a math problem from Diego
for one Spanish translation so she is one Spanish translation ahead.
To produce Spanish translation would have cost Diego 3/2 math problems but he can buy a Spanish translation from
Maria for one math problem so he is 1/2 math problem ahead.
Both parties have gained from specialization and exchange.
The same logic can be applied to international trade. If some workers in Mexico have a comparative advantage in
automobile assembly, and some U.S. producers have a comparative advantage in automobile design, the law of comparative advantage suggests that U.S. workers should design automobiles and Mexican workers should assemble them. The
welfare of both groups of workers will increase.
The problem lies in the fact that some workers in both areas will become unemployed as foreign products compete with
domestic ones. While the welfare of some workers in both nations will have increased, some in both nations will lose
jobs. The distribution of the gains and losses is a serious social issue. This creates political pressure for protection from
“unfair” foreign competition.
One of the problems with this discussion is that it tends to focus on jobs lost through international trade which are pretty
easily identifiable and ignores the jobs created by international trade which are less easy to identify.
The input per fixed output approach
While the five steps outlined above are reasonably simple, textbooks (and tests) sometimes use a different approach. The
explanation above uses the “output per fixed input” approach, presenting the amount of products that the individuals
can produce with a given amount of labor time. The other way to do it is to use the “input” approach, explaining how
long it takes to produce one unit of the output. Failure to recognize this difference can cause hopeless confusion.
6.18
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
© California Council on Economic Education, 2005
With the input approach, use the following worksheet to determine who should specialize in what product and who
gains what from trade.
SHOES
HATS
INPUT PER PAIR (LABOR HOURS)
INPUT PER HAT (LABOR HOURS)
Bernard
4
3
Donna
2
1
All this does is add one more step to the process and make the arithmetic a little clumsier.
If it takes Bernard four labor hours to produce one pair of shoes, Bernard can produce 1/4 pair of shoes in one hour. If it
takes him three labor hours to produce one hat, he can produce 1/3 of a hat in one hour. So, on a test, do the extra step:
Convert input per unit of output to output per unit of input by inverting the number of
inputs per hour. (Input/output, output/input)
Now, the steps are the same as the output per fixed input approach.
n
Step 1. Calculate the opportunity cost of each good for each person.
SHOES
HATS
OUTPUT PER LABOR HOUR
OUTPUT PER LABOR HOUR
Bernard
1/4
1/3
Donna
1/2
1
How much does one pair of shoes cost Bernard?
1/4 shoe = 1/3 hat
Multiplying both sides by 4:
1 shoe = 4/3 hats
If Bernard wants to produce 1 pair of shoes, he gives up 4/3 hat.
How much does one hat cost Bernard?
1/3 hat = 1/4 shoe
Multiplying both sides by 3:
1 hat = 3/4 shoe
© California Council on Economic Education, 2005
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
6.19
SHOES
HATS
OPPORTUNITY COST
(HAT PER PAIR OF SHOES)
OPPORTUNITY COST
(PAIR OF SHOES PER HAT)
Bernard
4/3
3/4
Donna
With one labor hour, Donna can produce 1/2 pair of shoes or one hat.
If 1/2 pair of shoes gets one hat, multiplying both sides by 2, 1 pair of shoes cost two hats.
Now we can see who should produce what.
LABOR COST OF
ONE PAIR OF SHOES
COMPARED TO HATS
LABOR COST OF
ONE HAT COMPARED
TO ONE PAIR OF SHOES
Bernard
4/3
3/4
Donna
2
1/2
It takes Bernard 4/3 as much labor to produce a pair of shoes as it does for him to produce 1 hat. It takes him 3/4 as
much labor to produce a hat as it does for him to produce a pair of shoes.
It takes Donna twice as much labor to produce a pair of shoes as it does for her to produce a hat and 1/2 as much labor
to produce a hat as a pair of shoes.
Bernard can produce shoes more cheaply than Donna (4/3 the labor compared to twice the labor) and Donna can produce hats more cheaply than Bernard (1/2 the labor compared to 3/4 the labor)
n
n
n
n
n
Step 2. Identify the bargains for both people.
__________ can produce product one more cheaply;__________ can produce product two more cheaply.
Step 3. Determine who should specialize in what. Whoever can produce product 1 more cheaply should specialize in
product one. Whoever can produce product two more cheaply should specialize in product two.
Step 4. Determine the price limits of exchange. The price limits are determined by the opportunity costs of
production as illustrated in the table above.
Step 5. Assume a price between the limits and use the table below to identify the gains from trade.
6.20
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
© California Council on Economic Education, 2005
Below is a template for you to use with your students.
PRODUCT 1
PRODUCT 2
OUTPUT PER LABOR HOUR
OUTPUT PER LABOR HOUR
Person 1
Person 2
Is this the output data or the input data? If input, invert the data to determine output?
Output per labor hour
PRODUCT 1
PRODUCT 2
OUTPUT PER LABOR HOUR
OUTPUT PER LABOR HOUR
Person 1
Person 2
Calculate the opportunity cost of each product for each producer.
PRODUCT 1
PRODUCT 2
OPPORTUNITY COST
(HAT PER PAIR OF PRODUCT 1
OPPORTUNITY COST
(PAIR OF PRODUCT 1 PER HAT)
Person 1
Person 2
Identify the price limits for each product.
Assume prices for both products, between the limits.
Calculate the gains from specialization and exchange for both parties.
PRICE OF PRODUCT 1 MINUS
PRODUCTION COST
PRICE OF PRODUCT 2 MINUS
PRODUCTION COST
Person 1
Person 2
© California Council on Economic Education, 2005
U N I T 6 : S P E C I A L I Z AT I O N I N P R O D U C T I O N
6.21