Page 21 - FINAL CFA I SLIDES JUNE 2019 DAY 6
P. 21
Session Unit 5:
19. Int. Trade & capital Flows, p136
LOS 19.c: Distinguish between comparative advantage and absolute advantage, p.138
Assume resources can either be channelled to
produce cloth or wine –with opportunity cost
being the main cost consideration!:
Absolute Advantage!
200 units 180 units
10 units Adv 30 units Adv
In opportunity cost terms, for Portugal to
produce 1 yard of cloth, it must forgo 1.1
bottles of wine whilst England only has to
forgot 0.88
Portugal has absolute advantage in both Cloth and Wine but has Comparative Advantage
in Wine Production whilst England has a Comparative Advantage in cloth production!
