HL2 BW 017

1.     Absolute advantage- Production of a good if it can produce it using fewer resources than another country

Comparative advantage- If a country can produce a good at a lower opp. cost than another country

2.     Reciprocal absolute advantage- If you have reciprocal absolute advantage. The country should specialize in that good/service.

3.     What gives a country comparative advantage- The endowment of resources

Limitations-

1. It is assumed there is perfect knowledge

2. assumed there is no transport costs

3. assume that there are only 2 economies producing 2 goods

4. assumed that costs of not change with economies or diseconomies of scale

5. goods traded are assumed to be identical

6. factors of production stay in country

7. assumed there is perfect free trade