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Chapter 2: Q 2.5 (page 27)

Distinguish between absolute and comparative advantage.

Short Answer

Expert verified

Comparative Advantage refers to lower opportunity cost whereas Absolute Advantage refers to the production of more units of goods with the given labor and input prices.

Step by step solution

01

 Definition of Comparative and Absolute Advantage.

Absolute advantage refers to producing more units of good with the given factor inputs.

Comparative advantage is the production of the good at a lower opportunity cost.

02

Step 2. Distinguish.

Comparative Advantage refers to lower opportunity cost whereas Absolute Advantage refers to the production of more units of goods with the given labor and input prices. Comparative advantage is a relative concept and is more important in choosing for the economy as compared to absolute advantage.

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Most popular questions from this chapter

Like physical capital, human capital produced in the present can be applied to the production of future goods and services. Consider the table in Problem 2-13, and suppose that the nation’s residents are trying to choose between combination C and combination F. Other things being equal, will the future production possibilities curve for this nation be located farther outward if the nation chooses combination F instead of combination C? Explain.

Senator Borman interjects the following comment after the statements by Senators Creighton and Long reported in Problems 2-10 and 2-11: “In fact, both of my esteemed colleagues are wrong, because an unacceptably large portion of our nation’s resources is currently unemployed.” Of the labeled points on the diagram, which one is consistent with Senator Borman’s position?

Using only the concept of comparative advantage, evaluate this statement: “A professor with a Ph.D. in physics should never mow his or her own lawn, because this would fail to take into account the professor's comparative advantage."

Suppose that in Fig 2-2, the nation currently is producing combination D in the table and on the graph of the production possibilities curve. What is the opportunity cost of producing 20 million more tablet devices and moving to production combination F?

You can wash, fold, and iron a basket of laundry in two hours and prepare a meal in one hour. Your roommate can wash, fold, and iron a basket of laun-

dry in three hours and prepare a meal in one hour. Who has the absolute advantage in laundry, and who has an absolute advantage in meal preparation? Who has the comparative advantage in laundry, and who has a comparative advantage in meal preparation?
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