Just remember this:
Absolute advantage --- producing the most (or according to your text ---- making something using fewer resources than other producers require)
Comparative advantage --- having the lowest opportunity cost
Given the following information which shows the output of 2 goods in 2 countries:
France: Wine - 5, Cheese - 2
United States: Wine - 10, Cheese - 10
QUESTIONS:
1. Who has absolute advantage in wine? in cheese? why?
2. Who has the comparative advantage in wine? in cheese? why?
3. Who should produce wine?
4. Who should produce cheese
5. Why?
Answers will appear in the next posting.
Next topic ---- Gains from specialization and trade! Fun!!!
