This document discusses absolute advantage and comparative advantage as they relate to international trade. Absolute advantage refers to when one country can produce goods more cheaply than another. Comparative advantage refers to a country specializing in producing goods where its opportunity costs are lowest. The key points are: (1) comparative advantage means that even if one country is less efficient, there are still gains from trade if opportunity costs differ; (2) countries should export goods where their comparative advantage is greatest and import goods where it is least; (3) factors like resource availability and combinations impact comparative advantage.

1. Absolute advantage vs Comparative advantage
Trade
Mossab Qwaqneh

2. Absolute advantage – exists when one nation can
produce goods more cheaply than another nation
Comparative advantage – ability of a nation to
specialize in the production of the good for which it
has lowest opportunity cost
Absolute Vs Comparative

3. Comparative advantage : If one nation is less efficient in the
production of a good than another nation, there is still a basis of gains
from trade
 A nation should specialize in production and export the good for
which its relative (comparative) advantage is greatest
A nation should specialize in production and export the good
for which it has the least relative disadvantage
 A nation should import the good for which its relative
(comparative) advantage is the least
A nation should import the good for which it has the greatest
relative disadvantage
Comparative advantage

4. Factors Affecting Comparative Advantage….
National differences in opportunity costs
Costs affected by availability of resources
Costs affected by production requirements for goods and
services produced
Costs affected by resource combinations
Costs affected by resource mobility

5. Summary
The law of comparative advantage was contrasted
with absolute advantage and competitive advantage.
Trade occurs because traders anticipate gains from
trading.
Comparative advantage determines why nations
trade.
The basis for trade is differing opportunity costs
among nations.
Nations specialize in producing those goods in which
they are most efficient and exchange these goods
with other nations.