Cambridge International as and a level Economics Ebook

Comparative advantage
Although absolute advantage explains a small proportion 
of global trade, more trade is based on 
comparative 
advantage
. Some countries buy products from abroad that 
their own producers would be capable of producing with 
fewer resources. Th
is is because it enables its producers 
to concentrate on producing those products they are 
even better at producing. For example, the USA may be 
more effi
cient than Bangladesh at producing both coats 
and shirts. Nevertheless, both countries can still benefi t 
from specialising and trading if the USA concentrates on 
producing the product it is more effi
cient at producing and 
Bangladesh specialises in the product it is not so relatively 
ineffi
cient in producing.
Th
e USA has the comparative advantage in producing 
coats. It can make four times as many coats as Bangladesh 
but only one and a quarter as many shirts. It can also 
be seen that the USA has the comparative advantage 
as its opportunity cost of producing coats (2½ shirts: 
10,000/4,000) is lower than Bangladesh’s (8 shirts: 
8,000/1,000).
Bangladesh has the comparative advantage in making 
shirts as it can make them at a lower opportunity cost. 
In Bangladesh for every shirt produced, one-eighth of 
Before 
specialisation
Aft er 
specialisation
Rice
Coff ee
Rice
Coff ee
Indonesia
500
200
1,000
Brazil
200
500
1,000
Total
700
700
1,000
1,000
Table 4.4 
Absolute advantage: specialisation
Rice (tonnes)
Coff ee (tonnes)
Indonesia
700
450
Brazil
300
550
Total
1,000
1,000