Trade in a One-Factor World Absolute Advantage A country has an absolute advantage in a production of a goods if it has a lower unit labor requirement than the foreign country in this goods Assume that aic a ic and a s a lw This assumption implies that Home has an absolute advantage in the production of both goods. Another way to see this is to notice that Home is more productive in the production of both goods than Foreign Even if Home has an absolute advantage in both goods beneficial trade is possible a The pattern of trade will be determined by the concept of comparative advantage Copyright C 2003 Pearson Education, Inc Slide 1-18Copyright © 2003 Pearson Education, Inc. Slide 1-18 ▪ Absolute Advantage • A country has an absolute advantage in a production of a goods if it has a lower unit labor requirement than the foreign country in this goods. • Assume that aLC < a * LC and aLW < a * LW – This assumption implies that Home has an absolute advantage in the production of both goods. Another way to see this is to notice that Home is more productive in the production of both goods than Foreign. – Even if Home has an absolute advantage in both goods, beneficial trade is possible. ▪ The pattern of trade will be determined by the concept of comparative advantage. Trade in a One-Factor World