AP Micro & MacroCore Economic Concepts
Comparative Advantage
Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer.
Even if one producer has an absolute advantage in everything, both gain by specializing in the good they sacrifice the least to make and then trading. The producer with the lower opportunity cost for a good should specialize in it. Mutually beneficial trade happens when the terms of trade lie between the two producers' opportunity costs.
Formula / Example
Opportunity cost of 1 unit of A = (units of B given up) ÷ (units of A gained). The producer with the lower ratio has the comparative advantage in A.
Interactive graph
Production Possibilities →
Drag the curves and see it for yourself.
Study module
Basic Economic Concepts →
Full lesson, practice questions, and flashcards.