Monday, May 16, 2016

Unit Seven: Comparative and Absolute Advantage

Comparative and Absolute Advantage

Notes 5/9/16

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 of a good/service than another country 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

Output Problems: Tons/ acre, MPG, Words Per Minute, Apples Per Tree, Televisions produced per Hour

Input Problems: Number of hours to do a job, Number of acres to feed a horse, Number of gallons to paint a house

Specialization and Trade
-Gains from trade are based on comparative advantage, not absolute advantage
-Companies should trade if they have a relatively lower opportunity cost


-JaelyNoTainted
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