ECON 105 Chapter Notes - Chapter 3: Absolute Advantage, Comparative Advantage, Opportunity Cost
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ECON 105 Full Course Notes
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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 has the absolute advantage. When one person specializes in the product that they have the comparative advantage in, the total production of the economy rises: this increases the size of the economic pie! (ef ciency) Trade can bene t everyone in society, because it allows people to specialize in activities in which they have a comparative advantage! For both parties to bene t from the trade, the price at which they trade must be between the two opportunity costs. Imports - goods and services produced abroad and sold domestically. Exports - goods and services produced domestically and sold abroad. Some forms of comparative advantage are natural: eg. natural talent, canada"s abundance of natural resources. Hard work, training, education and experience can create or enhance comparative advantage.