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Ch. 3 Interdependence and the Gains from Trade
for exam 1
4
Economics
Undergraduate 1
02/08/2011
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Term
absolute advantage
 Definition
the ability to produce a good using fewer inputs than another producer
Term
comparitive advantage
 Definition
the ability to produce a good at a lower opportunity cost than another producer
Term
Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour. His friend Friday can gather 30 coconuts or catch 2 fish per hour. What is Crusoe's opprotunity cost of catching 1 fish? What is Friday's? Who has the abolute advantage in catching fish? Who has a comparative advantage?
 Definition
Crusoe's opportunity cost of catching on efish is 10 coconuts, since he can gather 10 coconuts in the sme amount of time it takes to catch one fish. Friday's opportunity cost of catching one fish is 15 coconuts, since he can fther 30 coconuts in the same amount of time it takes to carch two fish. Friday has an absolute adcantage in catching fish, ince he can ctch two per hour, while Crusoe can catch one one per hour. But Crusoe has a comparative advantage in catching fish, since his opportunity cost of catching a fish is less than Friday's.
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