Click the Study Aids tab at the bottom of the book to access your Study Aids (usually practice quizzes and flash cards).
Study Pass is our latest digital product that lets you take notes, highlight important sections of the text using different colors, create "tags" or labels to filter your notes and highlights, and print so you can study offline. Study Pass also includes interactive study aids, such as flash cards and quizzes.
Highlighting and Taking Notes:
If you've purchased the All Access Pass or Study Pass, in the online reader, click and drag your mouse to highlight text. When you do a small button appears – simply click on it! From there, you can select a highlight color, add notes, add tags, or any combination.
If you've purchased the All Access Pass, you can print each chapter by clicking on the Downloads tab. If you have Study Pass, click on the print icon within Study View to print out your notes and highlighted sections.
To search, use the text box at the bottom of the book. Click a search result to be taken to that chapter or section of the book (note you may need to scroll down to get to the result).
View Full Student FAQs
17.13 Comparative Advantage
Comparative advantage is an idea that helps explain why individuals and countries trade with each other. Trade is at the heart of modern economies: individuals specialize in production and generalize in consumption. To consume many goods while producing relatively few, individuals must sell what they produce in exchange for the output of others. Countries likewise specialize in certain goods and services and import others. By so doing, they obtain gains from trade.
Table 17.4 shows the productivity of two different countries in the production of two different goods. It shows the number of labor hours required to produce two goods—tomatoes and beer—in two countries: Guatemala and Mexico. From these data, Mexico has an absolute advantage in the production of both goods. Workers in Mexico are more productive at producing both tomatoes and beer in comparison to workers in Guatemala.
|Hours of Labor Required|
|Tomatoes (1 kilogram)||Beer (1 liter)|
In Guatemala, the opportunity cost of 1 kilogram of tomatoes is 2 liters of beer. To produce an extra kilogram of tomatoes in Guatemala, 6 hours of labor time must be taken away from beer production; 6 hours of labor time is the equivalent of 2 liters of beer. In Mexico, the opportunity cost of 1 kilogram of tomatoes is 1 liter of beer. Thus the opportunity cost of producing tomatoes is lower in Mexico than in Guatemala. This means that Mexico has a comparative advantage in the production tomatoes. By a similar logic, Guatemala has a comparative advantage in the production of beer.
Guatemala and Mexico can have higher levels of consumption of both beer and tomatoes if they trade rather than produce in isolation; each country should specialize (either partially or completely) in the good in which it has a comparative advantage. It is never efficient to have both countries produce both goods.
- Comparative advantage helps predict the patterns of trade between individuals and/or countries.
- A country has a comparative advantage in the production of a good if the opportunity cost of producing that good is lower in that country.
- Even if one country has an absolute advantage in all goods, it will still gain from trading with another country.
- Although the example is cast in terms of countries, the same logic is also used to explain production patterns between two individuals.