ECO-4 Lecture Notes - Lecture 2: Absolute Advantage, Opportunity Cost, Comparative Advantage
Document Summary
Absolute advantage: when one person is able to produce a good or service or perform a given task with less resources than another person. Comparative advantage: when one person"s opportunity cost of producing a good or service or performing a given task, is lower than another person"s opportunity cost. Everyone can do better when each person/country specialises in the production of a good or service for which they have the lowest opportunity cost. Specialisation is an alternative to a system where everyone is self-sufficient and a jack- of-all-trades. According to the principle of comparative advantage, jack should specialise in shoe repairs and. Individual: inborn talent, education, training and experience. National level: natural resources, infrastructure, emergence of english as the de facto world language english-speaking countries have a comparative advantage in producing books, music and films, cultures that encourage entrepreneurship comparative advantage in innovation.