ECO101H1 Lecture Notes - Comparative Advantage, Absolute Advantage, Opportunity Cost

• School: UTSG
• Department: Economics
• Course: ECO101H1
• Professor: Gustavo Indart

Document Summary

Gains from trade: increased output attributable to the specialization according to comparative advantage that is made possible by trade. Absolute advantage: the situation that exists when one country can produce some commodity at lower absolute cost than another country. Comparative advantage: the situation that exists when a country can produce a good with less forgone output of other goods than can another country. Comparative advantages reflect opportunity costs that differ between countries. The gains from specialization and trade depend on the pattern of comparative, not absolute, advantage. Summary of questions to be asked: given a table that shows the output per unit of resource for two countries, determine the country with the comparative advantage in good a and good b. Determine the opportunity cost of one good for each country. The country that has the lower opportunity cost has comparative advantage of this good: given the number of resource units, draw each country"s ppc.