Key Concepts and Summary

Key Concepts and Summary

A country has an absolute advantage in those products in which it has a productivity edge over other countries; it takes fewer resources to produce a product. A country has a comparative advantage when a good can be produced at a lower cost in terms of other goods. Countries that specialize based on comparative advantage gain from trade.

Glossary

absolute advantage

when one country can use fewer resources to produce a good compared to another country; when a country is more productive compared to another country

gain from trade

a country that can consume more than it can produce as a result of specialization and trade