The distinction between comparative and absolute advantage
Absolute advantage means a country produces something using fewer resources than another country. Comparative advantage means a country produces something at a lower opportunity cost than another country.
Formula
Absolute Advantage: fewer inputs per unit; Comparative Advantage: lower opportunity cost per unit
Real World
The US is more productive than Mexico at producing both cars and avocados, giving it absolute advantage in both — yet Mexico still exports avocados to the US because its opportunity cost of avocado production is comparatively lower.
Exam Focus
A common exam error is conflating the two concepts — state explicitly that comparative advantage depends on opportunity cost, not productivity levels.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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