Chapter 2 (2)

Question 1

ABSOLUTE ADVANTAGE-

Answer 1

if a producer = can generate more output than others w/ a given amount of resources

►Canada = has an absolute advantage over China @ producing both shirts & wheat b/c it can make more of both products than China per worker

►Absolute advantage does not aid in understanding how countries decide which goods to produce.

►For every t-shirt produced, the country (Canada) uses resources that could otherwise be spent growing wheat.

►Trade is based on opportunity cost.

Question 2

COMPARATIVE ADVANTAGE

Answer 2

when a producer = can make a good at a lower opportunity cost than other producers

► a country = can have a comparative advantage w/out having an absolute advantage

► you may noticed that for each country, the opportunity cost of growing wheat = the INVERSE of the opportunity cost of producing shirts