The document discusses comparative advantage and how countries can benefit from international trade. It explains that countries should specialize in producing goods where they have a comparative rather than absolute advantage. This is determined by comparing productivity ratios across sectors. The example shows Portugal has a comparative advantage in wine and England in clothes. Specializing allows each country to produce more of its strong good and trade, benefiting both countries through increased production possibilities and saving labor.

1. The comparative advantage
• The countries have to specialize in an activity even if
they don’t have an absolute advantage, so as to get
benefit from the international trade.
• Each country has to specialize in the sector in which
they have a relative advantage, ie where the
advantage of the country in term of relative
productivity is the highest. Then, the country can trade
its product from this sector.

2. The comparative advantage
Hours/units
PORTUGAL
ENGLAND
Wain : X
Litres
80
120
Clothes : Y
metres
Absolute
advantage
90
Absolute
advantage
100
• England has no absolute
advantage since Portugal has
the absolute advantages in
both sectors.

3. The comparative advantage
Hours/units
PORTUGAL
ENGLAND
VIN: X litres
80
120
Clothes : Y
metres
90
100
The comparative advantage depends
on the comparison in the productivity.
The productivity is the ratio between
the ouput and the input.
Example : Portugal uses 80 people by
year to produce x litres of wain. The
productivity is X/80

4. The comparative advantage
Houts/units
PORTUGAL
ENGLAND
Wain: X
litres
80
120
Productivity comparison for the wain:
X/80
X/120
(X/120) / (X/80) = 0,66
90
100
X/90
X/100
Clothes : Y
metres
Productivity comparison for clothes:
(X/100) / (X/90) = 0,9
Between these 2 sectors, England has the
weakest disadvantage in the production of
clothes.

5. The comparative advantage
Hours/units
PORTUGAL
ENGLAND
Wain: X
litres
80
120
CLOTHES :
Y metres
Comparative
advantage
90
100
Comparative
advantage
Portugal will specialize in the
production of wain and will
product 2 X
England will specialize in the
production of clothes and will
product 2 Y
Portugal will trade 1 X against
1 Y produced by England

6. The comparative advantage
Hours/units
PORTUGAL
ENGLAND
Wain: X
litres
80
160
120
0
DRAP : Y
metres
90
0
100
200
Gain in labor force
10
20
by year:
(170 – 160)
(220 – 200)
How many workers will be
used after the specialization ?
The international
specialization permits to
each countries to save the
work of a part of the labor
force in getting the same
production.

7. The comparative advantage
Hours/units
PORTUGAL
ENGLAND
Wain: X
litres
80
160
120
0
DRAP : Y
metres
90
0
100
200
Gain in labor force
10
20
by year:
(170 – 160)
(220 – 200)
How many workers will be
used after the specialization ?
The international
specialization permits to
each countries to save the
work of a part of the labor
force in getting the same
production.