ECON 20A Lecture Notes - Lecture 3: Absolute Advantage, Comparative Advantage, Opportunity Cost
Document Summary
Absolute advantage: the ability to produce a good using fewer inputs than another producer. 2 countries can gain from trade when each specializes in the good it produces at lowest cost. Absolute advantage measures the cost of a good in terms of the inputs required to produce it. Comparative advantage: the ability to produce a good at a lower opportunity cost than another producer. **difference between absolute and comparative advantage, on how we measure the cost. Absolute advantage is not necessary for comparative advantage. Gains from trade arise from comparative advantage (differences in oc) If a country specializes in a good that has a comparative advantage, total production in all countries is higher, and all countries can gain from trade. Market, a group of buyers and sellers of a particular product. Competitive market, one with many buyers and sellers, each has a negligible effect on price.
