Principles of Macroeconomics / Unit 17 MAC 1604 worked example, 60 to 90 seconds
Finding Both from an Output Table
The idea
From output per worker, find each country's absolute advantage and each country's comparative advantage. Absolute advantage is read straight off by comparing the larger number in each row. Comparative advantage needs opportunity cost, which comes from setting the two outputs equal within one country and dividing.
In practice
Take Northland and Southland. A Northland worker produces 10 cloth or 20 grain a year; a Southland worker produces 8 cloth or 8 grain. Northland's numbers are larger in both goods, so Northland has the absolute advantage in both. Now the opportunity costs. In Northland, 10 cloth and 20 grain take the same labour, so one cloth costs two grain. In Southland, 8 cloth and 8 grain take the same labour, so one cloth costs one grain. Southland gives up less grain per cloth, so Southland has the comparative advantage in cloth; Northland has it in grain.
Where people slip
Notice what happened: the country that is better at making everything has the comparative advantage in only one good. That is the whole point of the concept, and reading the table for absolute advantage alone gets the trade pattern exactly backwards.
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