ECON 0110 Lecture Notes - Lecture 7: European Cooperation In Science And Technology, Comparative Advantage, Opportunity Cost
Document Summary
Specialization and free trade benefit all trading parties. Two producers can both gain by specializing in the production of the item in which they have a comparative advantage and then trading with each other. Producer a has an absolute advantage over producer b in the production of a given item if, by using a given amount of resources, producer a can produce more of the given item than producer b. Alternatively, absolute advantage is the ability to make something using fewer resources than other producers use. If a has absolute advantage over b, then a is better at producing the item. Comparative advantage is the ability to produce something at a lower opportunity cost than other producers. Suppose the us and china both can produce cell phones and calculators. Suppose in china, in one day, workers can produce 2,000 cell phones or 8,000 calculators, or various combinations of the two goods.
