#AP Macroeconomics: Unit 1 - Comparative Advantage and Trade 🚀

Hey! Let's get you prepped for the exam with a super clear breakdown of comparative advantage and trade. This is a foundational topic, so nailing it down is key!

# Key Concepts 🔑

#Absolute Advantage

- It's about who can produce more, plain and simple. - A country has an absolute advantage if it can produce a good at a lower cost, or in less time, than its competitors.

#Comparative Advantage

- It's not about being the best, but about being the *least worst* at something. - Countries should specialize in producing goods where they have a comparative advantage.

#Terms of Trade

• The rate at which one good can be exchanged for another. It's like the price of trade!
• These must fall between the opportunity costs of both trading partners to be beneficial.

# Introduction 🌍

International trade is all about specialization and efficiency. Countries trade to gain a competitive edge and boost their economies. The core idea is that by focusing on what they do best (comparative advantage), countries can achieve higher overall production and consumption.

#Types of Problems: Output vs. Input 🧮

• Output Problems: Focus on how much can be produced with a given set of resources.
• Input Problems: Focus on how much of a resource is needed to produce one unit of a good.

# Output Problems 🏭

#Rules to Remember:

• Absolute Advantage: Look for the highest output.
• Comparative Advantage: Calculate the per-unit opportunity cost using: give up / gain. The lowest cost wins!
• If both countries produce the same amount, neither has an absolute advantage.
• Countries export what they have a comparative advantage in and import what they don't.

#Example: Canada vs. Japan 🇨🇦 🇯🇵

Let's use the example from your notes:

#Determining Absolute Advantage

#Determining Comparative Advantage