Absolute advantage: making more of a good than another country with the same resources. Comparative advantage: making it at a lower opportunity cost.
What each country can make with all its resources
| Country | Wheat (tonnes) | Cloth (tonnes) |
|---|---|---|
| Arland | 40 | 20 |
| Belmont | 20 | 40 |
Read the table
Absolute advantage
Arland makes more wheat (40 v 20); Belmont more cloth (40 v 20).
Comparative advantage
Who gives up less? That decides who makes what, even if one country is better at both.
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Paper 3 asks you to find comparative advantage from data, for 2 marks.
Opportunity costs: the lower one is the comparative advantage
| Country | Opportunity cost of 1 tonne of wheat | Opportunity cost of 1 tonne of cloth |
|---|---|---|
| Arland | 20 ÷ 40 = 0.5 cloth | 40 ÷ 20 = 2 wheat |
| Belmont | 40 ÷ 20 = 2 cloth | 20 ÷ 40 = 0.5 wheat |
How to work it out
Divide
Opportunity cost of wheat = cloth given up ÷ wheat gained.
Compare
Arland 0.5, Belmont 2: Arland's is lower.
State it
"Arland has the comparative advantage in wheat."
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Two straight-line PPCs show the same story. The slope is the opportunity cost.
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Watch the graph build step by step in study mode.
The points to remember
- Constant costs: draw straight lines and mark both intercepts.
- The flatter line has the lower opportunity cost of the good on the x-axis.
Specialising and trading gives both countries more.
Specialising raises total output
| Wheat (tonnes) | Cloth (tonnes) | |
|---|---|---|
| Before: each makes half and half | 20 + 10 = 30 | 10 + 20 = 30 |
| After: Arland makes wheat, Belmont cloth | 40 | 40 |
| Gain for the two together | +10 | +10 |
Where comparative advantage comes from
Natural resources and climate
Brazil's climate suits coffee.
Skills and education
Trained workers make complex goods more cheaply.
Capital and technology
Modern machines cut the cost of each unit.
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Paper 1 asked this in November 2023, as part (a) for 10 marks.
Explain how specialising according to comparative advantage can make international trade mutually beneficial.
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How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Theory fully explained, terms used correctly all the way through, the diagram included and fully explained |
| 7–8 | Theory explained, terms mostly right, the diagram included and explained |
| 5–6 | Theory partly explained, some terms, the diagram included |
| 1–4 | Theory only described or stated; few relevant terms |