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Main content
Current time:0:00Total duration:8:52
MKT‑1 (EU)
MKT‑1.B (LO)
MKT‑1.B.1 (EK)
MKT‑1.B.2 (EK)
MKT‑2 (EU)
MKT‑2.A (LO)
MKT‑2.A.1 (EK)
MKT‑2.A.2 (EK)
MKT‑2.B (LO)
MKT‑2.B.1 (EK)

Video transcript

in other videos we have already looked at production possibility curve and output tables in order to calculate opportunity costs of producing a certain product in a certain country and then we use that to think about comparative advantage we're going to do something very similar in this video but instead of thinking about or instead of starting with output we're gonna start with input so right over here we have a table that shows us the work or hours per item per country so instead of this being an output table where we say in a given country how much of say toy cars can a worker in country a produce per day here we're saying how many hours does a worker in country a take to produce a toy car in country a it is two hours that labor that two hours of labor this is the input so we're not counting the number of cars per day here we're saying how many hours per car eight we need to put in to produce it similarly we have the input required in country a to produce a belt one hour of worker time in country B four hours of worker time produces a toy car and in country B three hours of worker time produce a belt so what we're gonna do next is convert this into the world that you might be more familiar with of thinking in an output world and to do that we'll just assume that there are eight working hours eight working hours per day in either in either country and so from this can we construct an output table and let me put this right over here output output table where once again we're going to think about the output in country a we're going to think about the output in country B and this is going to be in how many units of that product can a worker produce per day in each of those countries so once again we're gonna have toy cars in this row and we're going to have belts belts in this row and let me just draw some lines so it's clear that we're dealing with a table here so there we go then one more column and so see if you can fill fill these in so how many toy cars per worker per day can reproduce in country a then think about it for belts then think about both of them for country B pause the video and try to figure that out all right now let's think about how many toy cars per worker per day let me make it very clear we're thinking per worker per day here because if we could fill out this output table from this I guess you could call this an input table then we can think about opportunity costs in the traditional way and then we could think about in which country do we have a comparative advantage so let's see toy cars and country a if it takes two hours to produce one toy car in country a and if you're working if the average or if the worker is working eight hours per day well then a worker can produce four cars for cars times two hours is eight hours so an average worker per day in country a can produce four toy cars let me write that in that red color for toy cars I just took eight hours that are divided by the number of hours it takes to produce a toy car similarly for belts if I have eight hours and it takes an hour for a worker to make one belt then per worker per day 8/1 I could produce eight belts and we could do the same thing for country B and I encourage you to pause the video if you haven't done so already and try to fill this column out well in country B if it takes four hours to produce a toy car per worker that means you take eight hours divided by four hours that you could produce two toy cars in a day per worker if it takes three hours to produce a belt well then you take your eight hours divide it by three hours per belt and you were gonna be able to make eight third belts per worker per day this is the same thing as 2 and 2/3 belts per worker per day so as you can see we can easily translate between the input world and the output world and then we could use this to calculate opportunity cost so let's do that let me write opportunity up or tunity opportunity cost and I'll make another table here so country a country B and then I have the toy cars toy cars and then I have the belts these are the belts in that orange color I have the belts and then let me set up my table we're almost there and at any point in time pause this video and see if you can figure out the opportunity cost given the information that we already have we've took this table to figure out this table and now we could take and now we could take and now we could take this table to figure out this one well let's do this together now so toy cars what's the opportunity cost in country a well one way to think about it is in country a the same energy to produce for for toy cars I'll call it for CC for cars we could also use that to produce eight belts so if I were to divide both sides by four the energy to create one car is equal to the energy to create two belts so my opportunity cost of a car is two belts and if I start with this original equation and just divide both sides by eight I would solve for the energy for a belt and so that would be four over eight is one half of the energy to make a car is equal to the energy to make a belt and so the opportunity cost of a belt is half a car one half a car and like always this and this are reciprocals of each other and we could do the same exercise for country B and once again I keep emphasizing try to pause the video if you do this on your own as opposed to just watching me do it it'll stick a lot better in your brain alright in country B the same energy to make two cars toy cars with that same energy I could make 8/3 8/3 belts 8/3 belts right over here so the energy to make a car divide both sides by 2 is equal to instead of one car I can make four thirds of a belt and so I'll just write this as one in 1/3 of a belt and then if I start right over here and I multiply both sides by 3/8 actually let me do that over here so I have 3/8 times 2 C is equal to 8/3 B times 3/8 these cancel out and over here I'm gonna have 6/8 c68 C is the same thing as 3/4 C is equal to B so instead of making one belt I could take that same energy and make 3/4 of a toy car 3/4 of a toy car so given everything that we've just done which country has a comparative advantage in toy cars well to figure that out we just look at the opportunity costs for toy cars and we compare them in country a the opportunity cost is two belts one country B it's only one in one-third belts so country B has a comparative advantage right over here comparative advantage in toy cars and then in belt 1/2 of a car is less than 3/4 of a car in belts and belts we see that country a has the comparative advantage and now what's always interesting about thinking about this is notice country B has the comparative advantage in toy cars it has less of an opportunity cost into a cars even though country a has the absolute advantage its workers are more efficient at producing toy cars a worker can produce four cars in country a versus two in country B but despite that because of the opportunity cost it would actually make sense for country B to focus on cars and for country a to focus on the belts but the big picture years we're thinking about comparative advantage and instead of thinking about it from with an output lens from the beginning we started with an input lens converted that to an output lens calculate an opportunity cost and then was able to figure out which countries had a comparative advantage in which products
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