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ECN 204 Lecture Notes - Absolute Advantage, Opportunity Cost, Comparative Advantage

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School
Ryerson University
Department
Economics
Course
ECN 204
Professor
Paul Missios

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Document Summary

Absolute advantage: the comparison among producers of a good according to their productivity. The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good. Comparative advantage: the comparison among producers of a good according to their opportunity cost. Opportunity cost: whatever must be given up to obtain some item. The gains from specialization and trade are not based on absolute advantage but on comparative advantage. For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs. 50,000 hours of labor available for production per month. 1 ton of wheat= 10 hours of labor. If canada uses all of its labor hours to produce computers, then it will produce 50,000/100 = 500 computers therefore horizontal axis is (500 computers, It takes 10 hours to produce a ton of wheat.

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Related Questions

If a country has a comparative advantage in the production of a good:
Ā 
a. it can produce that good at a lower opportunity cost.
Ā 
b. it will not find trade beneficial because other countries won't have a comparative advantage in other goods.
Ā 
c. it must also have an absolute advantage in the good.
If a country has a comparative advantage in the production of a good:
Ā 
(i) it will not find trade beneficial because another country(ies) won't have a comparative advantage in other goods.
(ii) it must also have an absolute advantage in the good.
(iii) it can produce that good at a lower opportunity cost.

4) A person who has an absolute advantage in the production of all goods will A) produce all goods at the lowest opportunity cost. B) also have a comparative advantage in the production of all goods. C) not be able to gain from specialization and trade. D) have a comparative advantage in the production of only some goods and not others. E) not have a comparative advantage in the production of any goodo.