Absolute Advantage
Individual Absolute Advantage exists when a person can produce more of a
certain good/service than someone else in the same amount of time (or can
produce a good using the least amount of resources).
National Absolute Advantage exists when a country can produce more a
good/service than another country can in the same time period.
Comparative Advantage
A person or a nation has a comparative advantage when it can produce one good and give up less of the other product when comparing to another person or nation.
Examples of
output problems
1. Words per
minute.
2. Miles per
gallons.
3. Tons per acre
4. Apples per
tree
5. Televisions
produced per hour
Examples of
input problems
1. Number of
hours to do a job.
2. Number of
acres to feed a horse
3. Number of
gallons of paint to paint a house.
Specialization and
trade
Gains from trade are
based on comparative advantage, not absolute advantage. The ratio of trade is established as 1 unit of product 1 : lowest opportunity cost of product 2 to higher opportunity cost of product 2.
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