Absolute Advantage and Comparative Advantage
EXAMPLE 1:
Assume that there are two nations in the world, Ireland and Switzerland, and that each country
can produce only two products. Each country uses half of its resources on each product. They
can produce the following:
Wool Chocolate
Ireland 6,000 kg 4,500 kg
Switzerland 1,500 kg 7,000 kg
1. If the two nations do not trade, how much wool and chocolate is produced?
For wool 7,500 kg is produced. For chocolate 11,500 kg is produced.500 kg
11,500 kg
2. Read the sentences and circle the correct word in brackets assuming the two nations do
not trade:
a. Ireland has a(n) (absolute, comparative) advantage in the production of (wool,
chocolate)
b. Switzerland has a(n) (absolute, comparative) advantage in the production of
(wool, chocolate)
3. The two countries decide to trade. Fill in the following table:
Wool Chocolate
Ireland 12,000 kg 0
Switzerland 0 14,000 kg
Total 12,000 kg 14,000 kg
4. Will the countries gain from trading? Explain?
The countries will pick up from trading because there would be a net gain in the two
categories for the two countries