Advanced Placement Microeconomics
Ms. Fry
Absolute Advantage and Comparative Advantage
Made Simple
Step by Step Directions
1. Data you need to figure it all out
a. Two producers
- two countries, two people, or two firms
b. Two goods/services
c. One factor of production (input)
- land, labor or capital
2. Absolute Advantage – means which producer can make one unit of a good/service using less
factors of production (input)
a. Create a table to show the factor of production needed for each good/service, based on
a scenario
In Aruba each worker can pick 100 coconuts a day or mine 2 diamonds.
In Barbados each worker can pick 50 coconuts a day or mine 5 diamonds.
Aruba
Barbados
Labor needed to make
Coconuts
1/100
(1 unit of labor/ # coconuts)
1/50
Diamonds
1/2
1/5
Look at the table you created. Which producer needs LESS labor to produce a coconut? That
producer has absolute advantage for coconuts. Which producer needs LESS labor to produce a
diamond? That producer has absolute advantage for diamond.
One producer may have absolute advantage of both goods/services or one producer can have
absolute advantage for one good/service and the other producer absolute advantage of the other
good/service.
3. Comparative Advantage – means which producer losses the least (opportunity cost) of a
goods/services when producing only one of another goods/services
a. Create an opportunity cost table
Aruba
Barbados
Opportunity Cost of:
One coconut costs how many
diamonds
1/50
1/10
Figure out the opportunity costs:
Aruba’s OC of 1 coconut (A) is X of diamonds (B)
X= B
X=2
X=1
A
100
One diamond costs how many
coconuts
50
10
50
Aruba’s OC of 1 diamond (A) is X of coconuts (B)
X= B
X = 100
X = 50 Inverse of answer above
A
2
Barbados’ OC of 1 coconut (A) is X of diamonds (B)
X= B
X=5
X=1
A
50
10
Barbados’ OC of 1 diamond (A) is X of coconuts (B)
X= B
X = 50
X = 10 Inverse of answer above
A
5
Look at the table you created. Which producer loses the LEAST diamonds when producing one
more coconut? That producer has the comparative advantage for coconuts. Which producer
loses the LEAST coconuts when producing one more diamond? That producer has the
comparative advantage for diamonds.
One producer CANNOT have the comparative advantage of both goods/services even if they
have the absolute advantage of both.