Unit 7 Absolute / Comparative Advantage

Absolute/ Comparative Advantage:

Absolute Advantage:

•  Individual- 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-exists when a country can produce more o a good/ service than another county can in the same time period.

Comparative Advantage:

A person or a nation has a comparative advantage in the production of a product when it can produce the product at a lower domestic opportunity cost than can a trading partner.

Specialization and Trade:

Gains from trade are based on comparative advantage, not absolute advantage.

Examples of Output Problem:

tons per acre

miles per gallon

word per minute

apple per tree

television produced per hour

Examples of Input Problems:

number of hours to do a job

number of acres to feed a horse

number of gallon of paint to paint a house