1.4 Comparative Advantage and Trade
A producer has comparative advantage in the good it makes at lower opportunity cost; specializing and trading on it lets both sides consume beyond their PPCs.
Absolute advantage means producing more of a good with the same resources; comparative advantage means producing it at a lower opportunity cost. Trade decisions run on comparative advantage: each producer should specialize in the good it gives up less to make.
To find it, convert every table to opportunity cost per one unit. With an output table (how much each producer makes), the opportunity cost of good X is the other good's output divided by X's output; with an input table (hours or acres per unit), the ratio flips. Then compare — whoever sacrifices less has the comparative advantage.
Mutually beneficial terms of trade sit strictly between the two producers' opportunity costs. If Ann gives up 2 hats per shirt and Ben gives up 5, any price between 2 and 5 hats per shirt makes both better off, letting each consume at a point outside its own PPC. A producer can hold absolute advantage in both goods but never comparative advantage in both.
Key terms for 1.4
Drag the curves yourself — the fastest way to make 1.4 stick.
Practice the math
Assigning comparative advantage to whoever produces more. Compare opportunity costs, not outputs — a producer with absolute advantage in both goods still has comparative advantage in only one.
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