APPLIED ECONOMICS ABSOLUTE ADVANTAGE

- capacity to produce more output compared

to another entity.
Reviewer ! zrei.bync COMPARATIVE ADVANTAGE
- having lower opportunity cost.

“People cannot have everything they want.

Consumers are limited by their income while
producers are limited by the factors of production." IN ORDER TO IDENTIFY SPECIALIZATION,
ANALYZE THE COMPARATIVE ADVANTAGE.
IS ECONOMIC A SOCIAL SCIENCE?
THE ONE WHO’S COMPARATIVE ADVANTAGE OR
- Yes! because it tries to understand how
THE ONE TO DOES HAVE A LOWER
people behave and interact with society.
OPPORTUNITY COST IS FIT FOR
Social Science
SPECIALIZATION.
- the branch of science devoted to the study of
societies and their relationships among
E.G
individuals within those societies

Denominator is the one who is being define.

APPLIED ECONOMICS
(economic as applied science)
- It is the application of economic theories
and models in real life.
WINE ONLY - WINE IS THE DENOMINATOR
- It is the study of how individuals and
societies choose to use scarce resources
Country ABC 3 over 9 = 1 over 3 or 0.333 coffee
that have alternative uses to produce
Country XYZ 2 over 8 = 1 over 4 or 0.25 coffee
goods and services that satisfy unlimited
human needs and wants.
COMPARATIVE ADVANTAGE
It’s all about CHOICES.
- Is the country XYZ, because they have the
Scarcity
lowest opportunity cost or have the lowest
- is the insufficiency of economic resources
production of coffee
and as a result, we have to decide and
SPECIALIZATION
choose.
- Country XYZ had to specialize WINE
- Lack of privileges to pick both, so we have
PRODUCTION because they are weak in
sacrifice and pick
coffee production.
Needs
- necessary for survival.
- individual’s basic requirement that must be
COFFEE ONLY - COFFEE IS THE DENOMINATOR
fulfilled in order to survive
- Essential for survival
Country ABC 9 over 3 = 3 WINE
- limited
Country XYZ 8 over 2 = 4 WINE
- something you must have
- remain constant over time
COMPARATIVE ADVANTAGE
Wants
- Is the country ABC, they have the lowest
- something a person desires to have.
opportunity cost of production of wine
- goods and services that individual like to
SPECIALIZATION
have
- Country ABC had to specialize COFFEE
- unlimited
PRODUCTION because they are weak in
- something you wish to have
wine production
- inessential for survival
- desire
- change over time

Law of Scarcity
- An economic system cannot produce all
goods and services that consumers want,
and most consumers do not have the
resources to purchase everything they want.
- Choices must be made about how limited
resources (time, money) are used.
Trade-off
- the exchange or choosing between
alternatives.
- It is a reality of life that getting one thing
would mean giving up another thing.
Opportunity Cost
- is the value or cost of the next best forgone
choice/alternative.
- it represents the benefits that could have
been gained by taking a different decision.
- also used to explain the Principle of
Comparative Advantage