POL_S 103 Lecture Notes - Lecture 9: Leading Edge, Absolute Advantage, Comparative Advantage
Document Summary
Portugal can produce all the cloth it needs with 90 laborers, and all the wine it needs with 90 laborers. Britain can produce equivalent amounts of cloth with 100 laborers, and equivalent amounts of wine with 110 laborers. If they put all their labor into wine and traded the surplus to. They could obtain more cloth than they could produce on their own. Portugal has an absolute advantage they can produce booth goods more cheaply/efficiently than the other country. But a country will gain from trade as long as it has a comparative advantage in at least one good it can produce that good more cheaply/efficiently than other goods. If every country specializes in the goods where it has a comparative advantage and trades for everything else, the total amount of goods produced in the world will be higher than if every country was self- sufficient.
