ECON 1000 Lecture Notes - Lecture 1: Absolute Advantage, Comparative Advantage, Opportunity Cost

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: edwrad

Document Summary

Comparative advantage: a person has a comparative advantage in an activity if that person can perform the activity at a lower opportunity cost than anyone else, the ppf shows opportunity cost. In the figure the opportunity cost of a bushel of wheat in canada is 1/4 of a computer and in japan it is 1 computer. In canada the opportunity cost of a computer is 4 bushels of wheat and in japan it is 1 bushel of wheat. Canada has a comparative advantage in producing wheat and japan has a comparative advantage in producing computers: a person has an absolute advantage if that person is more productive than others. A person (or country) can have an absolute advantage in all activities but that person (or country) will not have a comparative advantage in all activities: achieving the gains from trade.