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Unit 2
[BU204: Macroeconomics]
Unit 2 Assignment
1. Explain the difference between absolute advantage and comparative advantage. Which is
more important in determining trade between individuals or countries? Is it absolute advantage
or comparative advantage? Why?
A country (or business, or individual) possesses an absolute advantage when they are able to
produce a product at a cost using fewer assets than their competitors. That is to say, someone
possessing an absolute advantage may produce an item at a lower per unit cost. Comparative
advantage, on the other hand, focuses less on efficiency (ie, relying on superior technology to
make production cheaper) and more on opportunity cost. An economic actor is said to have
comparative advantage if their opportunity cost for producing a good or service is lower than
that of their competitors.
With respect to which is more important, both are important. It is a matter of what is possible
moreso than what is “important”. If a country cannot compete with superior technology, then
comparative advantage will work to their advantage.
2. Let us assume two students must prepare a presentation for their marketing class. As part of
their class presentation, they must do a series of calculations and prepare 50 PowerPoint
slides. It would take Larry 10 hours to do the required calculation and 10 hours to prepare the
slides. It would take Kate 12 hours to do the series of the calculations and 20 hours to prepare
the PPT slides.
A. How much time would it take the two students to complete the project if they divide the two
tasks equally?
It would require 11 for calculations, and 15 for slide pr...