AP Macro: Determining Comparative Advantage

Nations trade on the basis of comparative advantage, but how do we determine who has a comparative advantage? To do this, we need to calculate each country’s or person’s opportunity costs for both activities. The way we calculate opportunity cost depends crucially on how the productivity data are expressed.

There are two ways to measure productivity: We can calculate output over a given period of time, or we can measure it by the amount of inputs (usually time) necessary to do an activity. Examples of output are tons per acre, miles per gallon, words per minute, apples per tree and televisions produced per hour. Examples of input are number of hours to do a job, number of gallons of paint to paint a house, number of acres to feed a horse and number of pitches to throw a strike.

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