Microeconomics: Principles for a Changing World
Microeconomics: Principles for a Changing World
4th Edition
ISBN: 9781464186677
Author: Eric Chiang
Publisher: Worth Publishers
Question
Chapter 16, Problem 1QP
To determine

The difference between absolute and comparative advantages.

Expert Solution & Answer
Check Mark

Explanation of Solution

The concept of absolute advantage is based on the differences in labor cost and comparative advantage is based on the differences in opportunity cost. Suppose, country A (or individual) can produce a good or service at a lower cost than country B, then country A has an absolute advantage in the production of that commodity, and trade will take place on the basis of this absolute advantage. A comparative advantage in international trade occurs when the opportunity cost of producing a commodity in one country is less than the other. Suppose, the same country has an absolute advantage in the production of both the commodities, then the specialization of products is based on the comparative advantage, which will help both the countries to attain gain from the trade.

In the given example, Michelle Wie, the professional golfer and you can finish laundry and golf. Suppose, she uses less time to finish laundry and golf than that of you take. Here, Michelle has an absolute advantage in both golf and laundry. Then, Michelle hires you to do laundry because her opportunity of laundry is higher than that of you.

Economics Concept Introduction

Opportunity cost: Opportunity cost is the cost of a foregone alternative that is the loss of other alternative when one alternative is chosen.

 Absolute advantage: It is the ability to produce a good using fewer inputs than another producer.

 Comparative advantage: It refers to the ability to produce a good at a lower opportunity cost than another producer.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Recommended textbooks for you
  • ENGR.ECONOMIC ANALYSIS
    Economics
    ISBN:9780190931919
    Author:NEWNAN
    Publisher:Oxford University Press
    Principles of Economics (12th Edition)
    Economics
    ISBN:9780134078779
    Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
    Publisher:PEARSON
    Engineering Economy (17th Edition)
    Economics
    ISBN:9780134870069
    Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
    Publisher:PEARSON
  • Principles of Economics (MindTap Course List)
    Economics
    ISBN:9781305585126
    Author:N. Gregory Mankiw
    Publisher:Cengage Learning
    Managerial Economics: A Problem Solving Approach
    Economics
    ISBN:9781337106665
    Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
    Publisher:Cengage Learning
    Managerial Economics & Business Strategy (Mcgraw-...
    Economics
    ISBN:9781259290619
    Author:Michael Baye, Jeff Prince
    Publisher:McGraw-Hill Education
  • ENGR.ECONOMIC ANALYSIS
    Economics
    ISBN:9780190931919
    Author:NEWNAN
    Publisher:Oxford University Press
    Principles of Economics (12th Edition)
    Economics
    ISBN:9780134078779
    Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
    Publisher:PEARSON
    Engineering Economy (17th Edition)
    Economics
    ISBN:9780134870069
    Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
    Publisher:PEARSON
    Principles of Economics (MindTap Course List)
    Economics
    ISBN:9781305585126
    Author:N. Gregory Mankiw
    Publisher:Cengage Learning
    Managerial Economics: A Problem Solving Approach
    Economics
    ISBN:9781337106665
    Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
    Publisher:Cengage Learning
    Managerial Economics & Business Strategy (Mcgraw-...
    Economics
    ISBN:9781259290619
    Author:Michael Baye, Jeff Prince
    Publisher:McGraw-Hill Education