Finding Comparative Advantage
Finding Comparative Advantage
Two producers make two products. This Demonstration calculates which producer has the comparative advantage in making a particular product. Comparative advantage shows which producer is more efficient in its production of a certain item and is found by discerning which party has a lower opportunity cost, which is dependent on the ratio of output/input. This analysis is used in the high-school level study of economics to determine which producer should specialize in making a specific product; this example, however, has its limitations: it only considers two producers and two products.
You can choose whether the productivity is determined by the output of final products or by the input, which might be raw materials or capital. The numbers given are the number of hours required by each producer to produce one unit of either item or item .
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