Overview
Understanding comparative and absolute advantage is essential for grasping the fundamentals of international trade and economic efficiency. Comparative advantage allows countries and businesses to specialize in the production of goods where they have a lower opportunity cost, leading to increased ov...
Key Terms
Example: Choosing to spend time studying instead of going out with friends.
Example: Country A can produce 10 tons of wheat while Country B can produce 5 tons.
Example: If Country A has a lower opportunity cost for wheat than Country B, it has a comparative advantage in wheat production.
Example: A PPF showing the trade-off between guns and butter production.
Example: Country A exports cars to Country B in exchange for oil.
Example: Allocating budget funds to different departments in a company.