ECO202 - Assignment 8.1

Absolute and Comparative Advantage

Example problem:

Anna can produce either 18 oranges or 9 apples an hour, while Beth can produce either 16 oranges or 4 apples an hour.

Absolute Advantage: Look at who makes more per hour.

• Anna picks more oranges in an hour than Beth; Anna has the absolute advantage in oranges.
• Anna also picks more apples in an hour than Beth; Anna has the absolute advantage in apples.

Comparative Advantage: Look at who has the lowest opportunity cost for each item.

• First, calculate opportunity cost for each person and fruit.

	Anna	Beth
Orange

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