EC120 Lecture Notes - Lecture 23: Absolute Advantage, Factor Endowment, Comparative Advantage
EC120 verified notes
23/24View all
Document Summary
Opportnity costs differ between countries . ( theory of comparative advantage . Trade allows importing countries to acquire goods at a lower opportunity costs than if they produced the goods themselves. Sources of comparitive advantage : different factor endowments (natural and man-made) A is more productive at producing x than b. A is less productive at producing x than b. A has a lower opportunity cost of x than b. A has a higher opprtunity cost of x than b. Result : if a has a comparative advantage in x then. B must have a comparative advantage in y. A must have comparative disadvantage in y. If opportunity costs differ between two countries then both countries gain from trade by . Specializing in the good for which they have a comparative advantage and then . Trading at a relative price which lies between opportunity costs in the two countries.
