Absolute Advantage

1
Absolute Advantage

• One person has an absolute advantage over another
  if he/she takes fewer hours to perform a task
  than the other person.

2
Comparative Advantage

• One person has a comparative advantage over
  another if his/her opportunity cost of performing
  a task is lower than the other persons
  opportunity cost

3
Comparative Advantage The Basis for Exchange
(Example)
Units of Pizzas per Day Units of Hamburgers per Day
Jane 50 100
Sam 30 90
4
Comparative Advantage The Basis for Exchange
(Example)

• Jane has
• Absolute advantage in the production of pizzas,
  but not hamburgers, and has a comparative
  advantage in the production of pizzas.
• Absolute advantage in the production of
  hamburgers, but not pizzas, and has a comparative
  advantage in the production of hamburgers.
• Absolute advantage in the production of
  hamburgers and pizzas, as well as a comparative
  advantage in the production of hamburgers.
• Absolute advantage in the production of
  hamburgers and pizzas, as well as a comparative
  advantage in the production of pizzas.