Comparative advantage

Comparative advantage

Lessons

Types of Advantages


Comparative advantage: Able to produce the product at a lower opportunity cost than anyone else.


Absolute advantage: produce the product using fewer inputs than everyone else.


Comparative advantage vs Absolute advantage: Comparative advantage involves comparing opportunity costs, while absolute advantage compares with production per hour.


Note: If two people or societies specialize in producing products in which they have comparative advantages, then the total value of goods and services will increase. This makes things more efficient.


Solving Comparative Advantage Problems


Follow the 4 steps::
  1. Set up a table to put all the values
  2. Compute opportunity costs
  3. Circle the lowest opportunity cost in each activity
  4. Define who should produce what
  • Introduction
    Comparative Advantage Overview:
    a)
    Types of Advantages
    • Comparative advantage
    • Absolute advantage

    b)
    Solving Comparative Advantage Problems
    • Set up a table
    • Compute opportunity costs
    • Circle the lowest opportunity costs
    • Define who should produce what
    • An Example