Summary AQA A-level Economics: Comparative and Absolute Advantage Notes

International Trade

Comparative Advantage:

Absolute Advantage: When a country can Produce a product using fewer
FOP than another Nation.

Comparative Advantage: A country should specialize in the goods and
services it can produce at the lowest opp.cost, and then trade with another
country.

Table showing Absolute Advantage:
Cotton(tonnes) Computers
India 20 10
Ghana 16 2

Table Showing OPP cost
1 Tonne Cotton 1 Computer
India ½ Computer 2 Tonnes of Cotton
Ghana ⅛ Computer 8 Tonnes of Cotton
OPP COST = CostGain OPP costs are reciprocals
For India:
Producing 1 tonne of cotton = producing 10/20 =½ computers
(divide both sides by 20)
Producing 1 computer = producing 20/10 = 2 tonnes of cotton
(divide both sides by 10)
For Ghana
Producing 1 tonne of cotton = producing 2/16 =1/8 computers
(divide both sides by 16)
Producing 1 computer = producing 16/2 = 8 tonnes of cotton
(divide both sides by 2)

, Who has the Opportunity cost advantage:
For 1 tonne of cotton: Ghana has lowest opportunity cost - lowest amount
of computers traded off.
For 1 Computer: India has the lowest opportunity cost - lowest amount of
tonnes of cotton given up.

- Ghana has a comparative Advantage in Cotton.
- India has a comparative advantage in Cotton.

Plotting PPC for Both Countries:




To work out comparative advantage from PPC:
1) Find the biggest difference in production on one axis (in this case
computers)
2) The country producing the most of that product has the comparative
advantage
3) The country on the other axis has the comparative advantage in the
other product.