FE - Absolute and Comparative Advantage (Lesson)

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 Absolute and Comparative Advantage

Introduction

Absolute Advantage - only source of a particular product or can make more of a product with the same amount of or fewer resources than other countries. Comparative Advantage - when a country can produce a product at a lower opportunity cost than other nations. Who has the advantage?

When a nation can make a product at a higher quantity and a faster rate than another, it has an absolute advantage. Comparative advantage is based on opportunity cost. When choosing to do a task, am I giving up more or less of the other good? If one nation has a lower opportunity cost than another to produce a good, it has the comparative advantage.

A nation has an absolute advantage if it's the only source of a particular product or can make more of a product with the same amount of or fewer resources than other countries. A comparative advantage exists when a country can produce a product at a lower opportunity cost than other nations.

As you go through this lesson - you should pay close attention to the following:

  • how to calculate absolute and comparative advantage
  • the process for graphing supply and demand

Watch the video below to get an overall idea of absolute and comparative advantage.

 

 

Absolute and Comparative Advantage

The American statesman Benjamin Franklin (1706–1790) once wrote:

“No nation was ever ruined by trade.”

Many economists would express their attitudes toward international trade in an even more positive manner. Trade has accompanied economic growth in the United States and around the world.

Click on the activity below to learn more.

Using Advantages for Trade

The presentation below will cover absolute and comparative advantage. 

 

Numerical Example of Absolute and Comparative Advantage

Take a closer look at absolute and comparative value in the presentation below.

Watch the video below for more examples of using absolute and comparative advantage.

 

 

Review

Review what you have learned by completing the activity below.

 

In Summary . . .

What's Your takeaway? Icon In conclusion, absolute and comparative advantage are important to understand when you are trying to divide tasks and determine who should do what. One person (or nation) will always have comparative advantage in one thing. Remember, it’s all about efficiency so it does not make sense to have one nation complete both tasks while the other does nothing. Trade is vital.

 

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