# 20.1 Absolute and comparative advantage  (Page 2/15)

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## A numerical example of absolute and comparative advantage

Consider a hypothetical world with two countries, Saudi Arabia and the United States, and two products, oil and corn. Further assume that consumers in both countries desire both these goods. These goods are homogeneous, meaning that consumers/producers cannot differentiate between corn or oil from either country. There is only one resource available in both countries, labor hours. Saudi Arabia can produce oil with fewer resources, while the United States can produce corn with fewer resources. [link] illustrates the advantages of the two countries, expressed in terms of how many hours it takes to produce one unit of each good.

How many hours it takes to produce oil and corn
Country Oil (hours per barrel) Corn (hours per bushel)
Saudi Arabia 1 4
United States 2 1

In [link] , Saudi Arabia has an absolute advantage in the production of oil because it only takes an hour to produce a barrel of oil compared to two hours in the United States. The United States has an absolute advantage in the production of corn.

To simplify, let’s say that Saudi Arabia and the United States each have 100 worker hours (see [link] ). We illustrate what each country is capable of producing on its own using a production possibility frontier (PPF) graph, shown in [link] . Recall from Choice in a World of Scarcity that the production possibilities frontier shows the maximum amount that each country can produce given its limited resources, in this case workers, and its level of technology.

Country Oil Production using 100 worker hours (barrels) Corn Production using 100 worker hours (bushels)
Saudi Arabia 100 or 25
United States 50 or 100

Arguably Saudi and U.S. consumers desire both oil and corn to live. Let’s say that before trade occurs, both countries produce and consume at point C or C'. Thus, before trade, the Saudi Arabian economy will devote 60 worker hours to produce oil, as shown in [link] . Given the information in [link] , this choice implies that it produces/consumes 60 barrels of oil. With the remaining 40 worker hours, since it needs four hours to produce a bushel of corn, it can produce only 10 bushels. To be at point C', the U.S. economy devotes 40 worker hours to produce 20 barrels of oil and the remaining worker hours can be allocated to produce 60 bushels of corn.

what is economics
Economic is science, which Studies human behaviour and who they are earn and spend
Ammu
how to derive the equation for the equilibrium level of national income in an open economy with no taxes
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Give me 5 example for Macro economics
1. Markets 2. Market Failure 3. Competition 4. Price Stability 5. Efficiency
Luyando
please can you explain markets and markets failure ?
Timothy
When we talk about Markets as an example of macroeconomics, we look at demand and supply in labor market.
Luyando
Then for market failures, we focus on market inefficiencies and failures such as the destruction of common goods due to economic systems that provide no incentive for their preservation
Luyando
Who is a discourage worker.?
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a discourage worker is simply a worker who stop looking for a job because he/she believe no job is available for them..
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sloping curve normal
A normal sloping curve
Mirasol
State what happen to the aggregate supply curve for beef. The price of beef decrease
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i think there is positive relationship between price n supply so as the price decreases the supply curve so decreases and vice versa
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quantity supply will decrease,less.profit for firms in a perfectly competitive market i guess
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yaa
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real costs are total money expenditure for the production of goods and services and opportunity costs is the money which is not included for production, like work of entrepreneurs in their own company
Maheswar
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fine wbu
Abinash
fine
ALIM
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sachin
hello sachin
Prathana
hi any indians?
Karan
I am not indian I am from Nepal 🇳🇵
Prathana
hi I'm Indian
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Karan
ohh nepal great
Karan
can you tell me prathana you like china more or india
Karan
I loved both
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oh nice
Karan
R u know ,u disturb some peoples?
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fine than you.
Haftay
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Maheswar
hello guys
hi!! i am from nepal.
Hi am fine thanks for you
cabdirixmaan
Abdirahman haaye seetahay
ALIM
ALIM ABDALLA walale fiican dhankaaga
cabdirixmaan
hello
are you studying macroeconomics.
yes
hi every one
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What is foreign reserve? Why countries reserved? And have any limitations of this reserve?
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endogenous and exogenous
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Luyando
CPI is calculates the price change in goods and services purchased by the households whereas, GDP calculates the price change in goods and services purchased by all the consumers, government, businesses and foreigners.
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yes
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What is the role of price system in The market economy