Prices and Markets Review Questions

Comparative advantage.

A country (or firm) has a comparative advantage over another in the production of a good if it can produce it at a lower opportunity cost.

Absolute advantage means that an economy can produce a good for lower costs than another. It means that less resources are needed to produce the same amount of goods.

Law of comparative advantage says that two countries (or firms) can both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods.