Comparative Advantage and Number Term Paper

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Absolute Advantage

A worker has an absolute advantage in the production of a good relative to another if it can produce the good at lower cost or with higher productivity (Armington, 1969). In this model we would say that worker 1 has an absolute advantage in both plumbing and masonry when compared to the worker 2. It is because worker 1 takes less number of hours in both of the activities: plumbing and masonry. In other words:

4< 5, therefore in each of the case worker 1 has an absolute advantage.

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Comparative Advantage

A worker has a comparative advantage over the other worker when he/she can produce that good at a lower opportunity cost relative to another worker (Arrow, 1974). Opportunity cost is defined generally as the value of the next best opportunity. In the context of the workers, workers have the opportunities either to work in masonry or plumbing (Chiang. And Masson, 1988). If for example, one….....

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