Absolute and Comparative Advantage

Absolute Advantage

• Individual- 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- 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 the product at a lower domestic opportunity cost than can a trading partner.
• Examples of output problems
• Words per minute
• Miles per gallons
• Tons per acre
• Apples per tree
• Televisions produced per hour
• Examples of input problems
• Number of hours to do a job.
• Number of acres to feed a horse
• Number of gallons of paint to paint a house.

 Specialization and trade

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