Confusion (1 Viewer)

[zelda]

can anyone gimme some examples of how to determine if a country is comparitive or absolute advantage in something?? im kind of confused as this could be in the multiple choice questions...
just need to clear that out of the way..thanks!!

 

[rainonmay]

Absolute advantage mean that the country can produce more of a good than another country.
Comparitive advantage is when a country can produce the good more efficiently than another country. E.g.
Country A
TV 100
Car 50
Country B
TV 80
Car 20

If you want to find out which country has the comparative advantage in producing TV you would do the following:

Country A: 50/100 (Car/TV) = 0.5
Country B: 20/80 = 0.25
Since Country B has a lower opportunity cost. It has a comparative advantage in producing TV. However Country A has an absolute advantage in producing both products.
You put the good that you want to find the comparative advantage as the denominator.