Question

Look at the examples, and then determine which type of advantage each one describes.


A producer can provide cable service more cheaply than another producer.


A producer can produce salads while giving up fewer opportunities to make sandwiches than another producer.


A producer can create more car parts than another producer, while using the same number of resources.

Answer 1

1. Absolute advantage — can provide cable service more cheaply than another producer (lower cost/output per resource).
2. Comparative advantage — produces salads while giving up fewer sandwiches (lower opportunity cost).
3. Absolute advantage — makes more car parts with the same resources (higher productivity).