Bibek K.

asked • 02/15/21

Microeconomics question

1.    What is absolute advantage? What is comparative advantage?

2.    Under what conditions does comparative advantage lead to gains from trade?

3.    Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage? Explain.

1 Expert Answer

By:

Nathan S. answered • 02/15/21

Tutor
New to Wyzant

High Marks Student for AP Microeconomics

Bibek K.

A full answer would be appreciated
Report

02/19/21

Nathan S.

1) Absolute advantage is when one person is quicker to produce a good than the other. Comparative advantage is when it is more efficient for one to make a good than the other due to gains from trade (to further understand how to discover who has it look in my long response). 2) Comparative advantage leads to gains from trade when the opportunity cost per additional unit of output is not equal between the two parties and they trade at a rate in between their production rates. In the example provided, Timothy's production rate was 1.67 cars per boat, and John's production rate was 2 cars per boat. As long as they trade somewhere between 1.67 and 2 cars per boat, like 1.75 cars per boat. They would both gain from trade. 3) Yes, in the example, Timothy had an absolute advantage in both areas. But since John can make more cars while making the same sacrifice as Timothy, he has a comparative advantage.
Report

02/23/21

Still looking for help? Get the right answer, fast.

Ask a question for free

Get a free answer to a quick problem.
Most questions answered within 4 hours.

OR

Find an Online Tutor Now

Choose an expert and meet online. No packages or subscriptions, pay only for the time you need.