9b. Absolute vs. Comparative Advantage

EPF9 The student will demonstrate knowledge of the global economy

Absolute and Comparative Advantages in International TradingCountries seek to maximize the use of their

limited resources

What is the difference between absolute and comparative advantage?

Absolute vs. ComparativeAbsolute AdvantageAn individual, business, or country that can produce

a certain good with fewer resources than other countries is said to have an absolute advantage.

Comparative Advantage An individual, business, or country that can produce

a certain good at a lower opportunity cost than its trading partners is said to have a comparative advantage.

What is specialization?Why does trade promote specialization?

SpecializationWhen an individual, business, or country

focuses its resources on producing a few goods or services and expects to trade for other goods and services it wants.

When nations trade based on comparative advantage, how are total production & consumption affected?

Affects of Comparative Advantage TradingTotal world production is greater when

nations specialize in the production of those products that they can produce most efficiently.

What is the primary motivating factor driving international trade?

Primary Motivating Factor for International TradeComparative advantage is the primary

motivating factor driving international trade.