Question

Briefly explain absolute and comparative advantages in trade, as well as opportunity cost. Then, briefly describe how comparative advantage leads to economic growth.

Answer 1

Answer:

Absolute advantage refers to the ability to produce more or better goods and services than somebody else. Comparative advantage refers to the ability to produce goods and services at a lower opportunity cost, not necessarily at a greater volume or quality.

Specialization according to comparative advantage would allow a country to reduce its average capital-output ratio, which will open up the possibility of a higher rate of growth of output for any given rate of investment.

Explanation: