How to Find

Absolute and
Comparative
Advantage
1. Absolute Advantage
Elsa produces 5 bracelets or 3 rings in one day.
Marge produces 7 bracelets or 2 rings in one day.

Elsa has the absolute advantage in the production of rings
because she can produce more of them than Marge given the
same resources.

Marge has the absolute advantage in the production of
bracelets because she can produce more of them than Elsa
given the same resources.
Production
Possibilities in ONE
DAY
Bracelets Rings
Elsa
5 3
Marge
7 2
Dont forget to notice how many days of
production the question is asking you to consider
Good idea to circle where you see absolute advantage
2. Comparative Advantage
Who can produce at the lowest opportunity cost? To nd out,
you need to nd out what each producer gives up to produce
1 unit of a good.
ELSA:
Whats her opportunity cost to produce 1 bracelet?
3 (rings)
_______________________

5 (bracelets)
What she gives up (opp cost)
on top

What she chooses to produce
on bottom
3 (rings)
__________________

5 (bracelets)
0.6
ELSA: Whats her opportunity cost to produce 1 bracelet?
Divide
Thats 0.6 rings
to produce
1 bracelet!
Now nd her opportunity cost to produce 1 ring.
5 (bracelets)
__________________

3 (rings)
1.67
ELSA: Whats her opportunity cost to produce 1 RING?
Divide
Thats 1.67 bracelets
to produce
1 ring!
You should repeat this process to nd out the opportunity
costs for Marge.
7 (bracelets)
__________________

2 (rings)
3.5 Bracelets
per 1 ring
2 (rings)
__________________

7 (bracelets)
0.2 Rings
per 1 Bracelet
Marge
Opportunity Cost of
Production
Bracelets Rings
Elsa
0.6 1.67
Marge
0.2 3.5
Look at the columns for bracelets and rings.
Which number is LOWEST in each category?
(rings per bracelet)
(rings per bracelet) (bracelets per ring)
(bracelets per ring)
Circle the lowest numbers. Those producers have comparative advantage.
What does this mean?
Elsa can produce 1 ring at the cost of 1.67
bracelets. She has the comparative advantage in
producing rings (because Marge can produce 1
ring at the higher cost of 3.5 bracelets).

Marge can produce 1 bracelet at the cost of 0.2
rings. She has the comparative advantage in
producing bracelets (because Elsa can produce 1
bracelet at the higher cost of 0.6 rings).
How does trade increase
wealth?
We can see how trade with specialization increases wealth if
we compare production without specialization to production
with specialization.
Production
Possibilities in
6 DAYS
Bracelets Rings
Elsa
15 9
Marge
21 6
Numbers
have been
multiplied
by 3 to
show that
each
producer
spends half
of 6 days
producing
each good.
Production
Possibilities in
6 DAYS
Bracelets Rings
Elsa
15 9
Marge
21 6
Total =
36 15
The sum of each product show us how much Elsa and Marge
would be producing if they divided their time evenly between
the production of bracelets and the production of rings.
36 + 15 = 51
Production Possibilities
in 6 DAYS
with specialization
Bracelets Rings
Elsa
0 18
Marge
42 0
Total =
42 18
With specialization, the total number of goods produced by
Elsa and Marge has increased from 51 to 60. The community
has become wealthier overall.
41 + 18 = 60