Comparative Advantage: "IOU" method

1. Country Corn
Acres
Opportunity Cost
of
1 Acre of Corn
In terms of Wheat Acres
Wheat
Acres
Opportunity Cost
of
1 acre of Wheat
In terms of Corn Acres
US 20C 40W
BRAZIL
30C 90W
Input Problem. Land (acres) and Labor are the INPUTS used to produce
OUTPUTS like Corn and Wheat.

2. Country Corn
Acres
Opportunity Cost
of
1 Acre of Corn
In terms of Wheat Acres
Wheat
Acres
Opportunity Cost
of
1 acre of Wheat
In terms of Corn Acres
US 20C
20C
1 Corn = _____
40W
1C = 1/2 (or .5)W
40W
BRAZIL
30C 90W
Input Problem. Land (acres) and Labor are the INPUTS used to produce
OUTPUTS like Corn and Wheat.
“IOU” stands for “INPUT: OTHER UNDER”.
CORN ACRES (US): When determining the Opportunity Cost of one INPUT (Corn acres), you
take the quantity of the “OTHER” good (Wheat acres) and put it UNDER Corn acres to form a
ratio of Corn acres-to-Wheat acres.
When you reduce 20C/40W you get 1 Corn Acre = ½ (or .5) Wheat Acre.
“UNDER”

3. Country Corn
Acres
Opportunity Cost
of
1 Acre of Corn
In terms of Wheat Acres
Wheat
Acres
Opportunity Cost
of
1 acre of Wheat
In terms of Corn Acres
US 20C
20C
1 Corn = _____
40W
1C = 1/2 (or .5)W
40W
BRAZIL
30C
30C
1 Corn = _____
90W
1C = ⅓ (or .33) W
90W
Input Problem. Land (acres) and Labor are the INPUTS used to produce
OUTPUTS like Corn and Wheat.
“IOU” stands for “INPUT: OTHER UNDER”.
CORN Acres (BRAZIL): When determining the Opportunity Cost of one INPUT (Corn acres),
you take the quantity of the “OTHER” good (Wheat acres) and put it UNDER Corn acres to
form a ratio of Corn acres-to-Wheat acres.
When you reduce 30C/90W you get 1 Corn Acre = ⅓ (or .33) Wheat Acre
“UNDER”

4. Country Corn
Acres
Opportunity Cost
of
1 Acre of Corn
In terms of Wheat Acres
Wheat
Acres
Opportunity Cost
of
1 acre of Wheat
In terms of Corn Acres
US 20C
20C
1 Corn = _____
40W
1C = 1/2 (or .5)W
40W
40W
1 Wheat = _____
20C
1W = 2 C
BRAZIL 30C
30C
1 Corn = _____
90W
1C = ⅓ (or .33) W
90W
Input Problem. Land (acres) and Labor are the INPUTS used to produce
OUTPUTS like Corn and Wheat.
“IOU” stands for “INPUT: OTHER UNDER”..
WHEAT Acres (US): When determining the Opportunity Cost of one INPUT (WHEAT acres),
you take the quantity of the “OTHER” good (CORN acres) and put it UNDER WHEAT acres to
form a ratio of Wheat acres-to-Corn acres
When you reduce 40W/20C you get 1 Wheat Acre = 2 Corn Acres.
“UNDER”

5. Country Corn
Acres
Opportunity Cost
of
1 Acre of Corn
In terms of Wheat Acres
Wheat
Acres
Opportunity Cost
of
1 acre of Wheat
In terms of Corn Acres
US
20C 20C
1 Corn = _____
40W
1C = 1/2 (or .5)W
40W 40W
1 Wheat = _____
20C
1W = 2 C
BRAZIL 30C
30C
1 Corn = _____
90W
1C = ⅓ (or .33)W
90W
90W
1 Wheat = _____
30C
1W = 3C
IN Problem. Corn and Wheat are the OUTPUTS as a result of using INPUTS such as Land
(acres) and Labor.
“OOO” stands for “OUTPUT: OTHER OVER”.
WHEAT aces (BRAZIL): When determining the Opportunity Cost of one INPUT (WHEAT
acres), you take the quantity of the “OTHER” good (CORN acres) and put it UNDER WHEAT
acres to form a ratio of Wheat acres-to-Corn Acres.
When you reduce 90W/30C you get 1 Wheat acre = 3 Corn Acres.
“UNDER”

6. Country Corn
Acres
Opportunity Cost
of
1 Acre of Corn
In terms of Wheat Acres
Wheat
Acres
Opportunity Cost
of
1 acre of Wheat
In terms of Corn Acres
US
20C 20C
1 Corn = _____
40W
1C = 1/2 (or .5)W
40W 40W
1 Wheat = _____
20C
1W = 2 C
BRAZIL 30C
30C
1 Corn = _____
90W
1C = ⅓ (or .33)W
90W
90W
1 Wheat = _____
30C
1W = 3C
Output Problem. Corn and Wheat are the OUTPUTS as a result of using INPUTS such as
Land (acres) and Labor.
“IOU” stands for “INPUT: OTHER UNDER”.
Now to answer the important questions
1. Which country produces Corn (Wheat) at the LOWEST Opportunity Cost?
2. Which country is SPECIALIZES in Corn (Wheat)?
3. Which country EXPORTS Corn (Wheat)? Imports Corn (Wheat)?