ECON1101 - Comparative v Absolute Advantage

Example

Fred George
Firewood 20 minutes 30 minutes
Shoe Repairs 10 minutes 30 minutes

Fred has the absolute advantage with each, but he should not do both, as collecting firewood costs him 2 shoes, but only costs George 1 (who hence has the comparative advantage). However Fred has both the absolute and comparative advantage when it comes to shoe repairs, as he loses only 1/2 his firewood, whereas George loses 1.

Comparative Advantage Sources: (These change over time)

  • Individually: talent, education, training, background, etc
  • Nationally: natural resources, infrastructure, culture etc