Chapter 3 - Interdependence and the Gains from Trade

Question 1

Absolute Advantage

Answer 1

When an individual, firm, or nation is more efficient at producing something than another individual, etc. they have absolute advantage.
This can mean using less resources, or doing it faster.

Question 2

Whats the difference between C.A. and A.A.?

Answer 2

absolute advantage is on an individual scale, how efficiently someone can produce something

comparative advantage is an advantage when in comparison to others, so essentially absolute advantage but only having it when comparing it to another individual, firm, or nation.

Ex. In this example, LeBron has an absolute advantage in mowing lawns because he can do the work with a lower input of time. Yet because LeBron’s opportunity cost of mowing the lawn is $30,000 and Kaitlyn’s opportunity cost is only $50, Kaitlyn has a comparative advantage in mowing lawns.