Econ 2: Principles of Economics
Questions for Review
Absolute advantage reflects a comparison of the productivity of one person, firm, or
nation to that of another, while comparative advantage is based on the relative
opportunity costs of the persons, firms, or nations. While a person, firm, or nation may
have an absolute advantage in producing every good, they cannot have a comparative
advantage in every good.
Many examples are possible. Suppose, for example, that Roger can prepare a meal of
hot dogs and macaroni in just ten minutes, while it takes Anita 20 minutes. Also
suppose that Roger can do all the laundry in three hours, while it takes Anita four
hours. Roger has an absolute advantage in both cooking and doing the laundry, but
Anita has a comparative advantage in doing the laundry. For Anita, the opportunity cost
of doing the laundry is 12 meals; for Roger, it is 18 meals.
Comparative advantage is more important for trade than absolute advantage. In the
example in problem 2, Anita and Roger will complete their chores more quickly if Anita
does at least some of the laundry and Roger cooks the meals for both, because Anita
has a comparative advantage in doing the laundry, while Roger has a comparative
advantage in cooking.
Problems and Applications
See Figure 2. If Maria spends all five hours studying economics, she can read
100 pages, so that is the vertical intercept of the production possibilities
frontier. If she spends all five hours studying sociology, she can read 250
pages, so that is the horizontal intercept. The opportunity costs are constant,
so the production possibilities frontier is a straight line.