ECON 1B03 Chapter Notes - Chapter 3: Comparative Advantage, Absolute Advantage, Opportunity Cost

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Mrs.Gajica

Document Summary

Comparative: absolute advantage: the ability to produce a good using fewer inputs than another producer. If each country has an absolute advantage in one good and specializes in that good, both countries can gain from trade. Measures the cost of a good in terms of the inputs required to produce it. 2 countries can gain from trade when each specializes in the good it produces at lowest cost: comparative advantage: ability to produce a good at a lower opportunity cost than another. Differences in opportunity cost and comparative advantage create the gains from trade.