A country has a comparative advantage in a good when it can make that good at a lower opportunity cost than another country. When each country specializes in its comparative advantage and trades, both can consume a combination outside their own PPC. Use the calculator to work output and input problems step by step, then test terms of trade on the PPC graphs.
Pick a preset or type your own numbers. Then flip between an output problem and an input problem with the same numbers and watch the answer reverse.
Each country specializes in its comparative advantage and trades. Propose a trade ratio and an amount to trade. Solid green PPCs show what each country can make on its own; the dashed purple line shows what it can consume after trading at your terms.
A producer has an absolute advantage in a good if it can make more of it with the same resources (output problem) or make one unit with fewer resources (input problem). One country can have an absolute advantage in both goods.
A producer has a comparative advantage in a good if it gives up less of the other good to make one unit. Unless the opportunity costs are equal, each country has a comparative advantage in exactly one of the two goods.
The table shows how many units each country can produce. Opportunity cost of one good = the other good's output ÷ this good's output. If A makes 40 wheat or 20 cloth, 1 wheat costs 20 ÷ 40 = 0.5 cloth.
The table shows the hours (or workers, or acres) needed to make one unit. Opportunity cost of one good = the input for the good you are asking about ÷ the other good's input. If a shirt takes 6 hours and a hat takes 3, 1 shirt costs 6 ÷ 3 = 2 hats. Lower numbers mean absolute advantage here.
The terms of trade are how much of one good trades for one unit of the other. Both countries gain only if the terms fall between their two opportunity costs. Outside that range, one country could do better by making the good itself.
Trade lets each country get a good for less than it would cost to make at home. What matters is the opportunity cost each country faces, which comparative advantage measures. Production stays on each PPC, but consumption moves outside it.
First, the two setups side by side. Then the presets from the calculator worked out the way an answer key would.
| Setup | What the numbers mean | Absolute advantage goes to | Opportunity cost of 1 X | Memory aid |
|---|---|---|---|---|
| Output problem | Units of each good made with the same resources (per day, per worker, in total) | The larger number | Y output ÷ X output | Output: the other good goes on top |
| Input problem | Hours, workers, or acres needed to make 1 unit | The smaller number | X input ÷ Y input | Input: the good you are in goes on top |
| Problem | Opportunity costs | Absolute advantage | Comparative advantage | Terms that help both |
|---|---|---|---|---|
| Output. A: 40 wheat or 20 cloth. B: 10 wheat or 15 cloth. | A: 1 wheat = 0.5 cloth, 1 cloth = 2 wheat B: 1 wheat = 1.5 cloth, 1 cloth = 2/3 wheat | A in both | A in wheat, B in cloth | Between 0.5 and 1.5 cloth per wheat |
| Input. A: 6 hours per shirt, 3 per hat. B: 8 hours per shirt, 2 per hat. | A: 1 shirt = 6 ÷ 3 = 2 hats B: 1 shirt = 8 ÷ 2 = 4 hats | A in shirts, B in hats | A in shirts, B in hats | Between 2 and 4 hats per shirt |
| Input. A: 2 hours per corn, 4 per steel. B: 6 hours per corn, 8 per steel. | A: 1 corn = 2 ÷ 4 = 0.5 steel B: 1 corn = 6 ÷ 8 = 0.75 steel | A in both (fewer hours) | A in corn, B in steel | Between 0.5 and 0.75 steel per corn |
| Output. A: 20 rice or 10 fish. B: 10 rice or 5 fish. | Both: 1 rice = 0.5 fish | A in both | Neither | None. Equal opportunity costs mean no gains from trade. |
AP-style multiple choice. Pick an answer to see the explanation.
The vocabulary for topic 1.3. Read the list, flip through flashcards, or quiz yourself. For every term in the unit, see the Unit 1 terminology guide.