Absolute Advantage and Comparative Advantage Worksheet



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Absolute Advantage and Comparative Advantage Worksheet

Absolute Advantage

Assume that there are two nations in the world, Ireland and Switzerland, and that each country can produce only two products. Each country uses half of its resources on each product. They can produce the following:

| |Wool |Chocolate |

|Ireland |6,000 kg |4,500 kg |

|Switzerland |1,500 kg |7,000 kg |

|Total | | |

1. If the two nations do not trade, how much wool and chocolate is produced in each? (answer in the table above)

7,500 kg 11,500 kg

2. Read the sentences and circle the correct word in brackets assuming the two nations do not trade:

a. Ireland has a(n) (absolute, comparative) advantage in the production of (wool, chocolate).

b. Switzerland has a(n) (absolute, comparative) advantage in the production of (wool, chocolate).

3. The two countries decide to trade based on absolute advantage. Fill in the following table:

| |Wool |Chocolate |

|Ireland | | |

|Switzerland | | |

|Total | | |

4. Will the countries gain from trading? Explain?

Assume that there are two nations in the world, Italy and China, and that they can produce only two products. Each country uses half of its resources on each product. They can produce the following:

| |Pairs of Shoes |Cars |

|Italy |2,000 |6,000 |

|China |15,000 |10,000 |

|Total | | |

1. If the two countries do not trade, how many pairs of shoes and cars will be produced? (answer in the table above)

2. Who has the absolute advantage in shoes?

3. Who has the absolute advantage in cars?

Opportunity Cost for ITALY’S production

4. Calculate the opportunity cost of producing a pair of shoes for Italy?

5. Calculate the opportunity cost of producing a cars for Italy?

Opportunity Cost for CHINA’S production

6. Calculate the opportunity cost of producing a pair of shoes for China?

7. Calculate the opportunity cost of producing cars for China?

8. Which country has the comparative advantage in pairs of shoes? (Who has the lowest opportunity cost—gives up fewer cars to make shoes?)

9. Which country has the comparative advantage in cars? (Who has the lowest opportunity cost—gives up fewer shoes to make cars?)

10. Fill in a new table that shows what will happen if both countries specialize in trade:

| |Pairs of Shoes |Cars |

|Italy | | |

|China | | |

|Total | | |

11. Does the world gain if the two countries trade?

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