comparitive and absolute advantage

absolute advantage-one country has an absolute advantage over the other if it can produce same about of goods with fewer resourcs

comparative advantage- the production of a product can produce the product at a lower domestic opportunity cost than a trading partner

Terms of trade- the rate of exchange of two products is be determined through negotiation
Specialization and Trade

• Specialization based on comparative advantage improves global resource allocation.
• Specialization and trade - increase productivity and the standard of living within a nation.
• Because of specialization and trade, there will be a larger global output of goods and services.

Input and Output Approach

• Output problem - based on the most of an item producer can make if it specializes using a set amount of resources.
• Take B/A for comparative advantage and pick the highest amount for absolute advantage.
• Input problem approach -  based on the least resources producer needs to make a set amount of an item .
• Take A/B for comparative and pick lowest amount for absolute.