Comparative Advantage Directions: Calculate the Opportunity Cost to determine who has the comparative advantage (the lowest opportunity cost) in each product What you give up (numerator) What you keep (denominator) Repaint Cars Opportunity Cost Build Engines Opportunity Cost (keep care give up engine) (Keep engine: give up car) Mark 4 James 5 1. Who should focus on painting cars? 2. Who should focus on building engines? Guns Opportunity Cost Butter Opportunity Cost (keep guns; give up butter) (keep butter give up guns) Country A 30 150 Country B 20 5 3. Which country should focus on Guns? 4. Which country should focus on Butter? # Guns # Butter Total Made Made Made Option 1 Country A & Country B make ONLY Guns Option 2 Country A & Country B make ONLY Butter Option 3 Country A & Country B focus on their comparative advantage 5. Describe the gains from trade when countries focus on their comparative advantage. (hint: compare the results from the different options in the chart above)