Unit 7 Absolute Advantage

May 6, 2016

Balance of Trade

Individual:Exists when a person can produce more of a certain good/ service than someone else in the same amount of time ( or can produce a good using the least amount of resources) 

National:  When a country can produce more of a good/service than the another country can in the same time period.

Comparative Advantage

Person or nation has a comparative advantage in the production of a product when it can produce the product at a lower domestic opportunity cost than a trading partner.

         Input:

EX:  (TVs produced per hour,  Miles per gallon)

      Output:
EX:   (# of hrs. to do jobs,  # of acres to feed horses)

Specialization and Trade

              Gains from trade are based on comparative advantage, not absolute advantage. (countries should trade if they have a lower opportunity cost)