Topic 3 - Comparative advantage and trade
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4 Terms
Absolute Advantage
The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources or using fewer resources
it is the comparison among producers of a good or service according to their productivity
Comparative advantage
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors
the comparison among producers of a good or service according to their opportunity cost
What are gains from specialization and trade based on?
Comparative advantage
firms are better off if they specialize in producing goods or services they have comparative advantage in and obtain other goods or services by trading
T/F It is possible to have an absolute advantage in producing a good or service without having comparative advantage
True
Note 
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