What is the difference between absolute and comparative advantage?

Absolute advantage compares resources used for the same good; comparative advantage compares what must be given up, and only the latter drives specialisation.

Why does the terms of trade have a floor and a ceiling?

The floor is the exporter's own opportunity cost and the ceiling the importer's, since beyond either side it is cheaper to produce at home.

S6 Economics | International Trade and Comparative Advantage Paper 1 (Foundation)

2026-11-04

Tutor Prep Guide · Secondary Economics

Start from the hours table, derive opportunity costs step by step, identify comparative advantage, compare joint output before and after specialisation, then find the range of prices both sides accept.

Attempt first, mark afterwards　Allow about twenty-five minutes; for each item write down how much of the other good one unit costs, then decide absolute versus comparative advantage and keep the two apart.

01　Paper details (check answers afterwards)

Item	Detail
Questions	10 items
Suggested time	About 25 minutes
Difficulty mix	Foundation 4 · Intermediate 3 · Challenge 2 · Error redo 1
Chapter	Chapter: S6 Economics \| International Trade and Comparative Advantage
Level	S6 (Secondary 6) Economics

02　Questions (10 items)

FoundationIn country X one unit of rice takes 2 hours and one unit of cloth takes 4 hours; in country Y the figures are 6 hours and 3 hours. In which good does X have an absolute advantage?
FoundationWhat is X’s opportunity cost of producing one unit of rice?
FoundationWhat is Y’s opportunity cost of producing one unit of cloth?
FoundationAccording to comparative advantage, how should the two countries specialise?
IntermediateEach country has 24 hours and spends half on rice and half on cloth. How much do joint outputs differ before and after specialisation?
IntermediateX exports rice and Y exports cloth. Within what range must the terms of trade for one unit of rice fall for both to gain?
IntermediateIf one unit of rice trades for one unit of cloth and X exports 4 units of rice, what is X’s final consumption bundle and how much does it beat autarky?
ChallengeAt the same price, Y specialises in cloth and sells 4 units. What is Y’s final bundle and its gain over autarky?
ChallengeIf X insists on one unit of rice for 2.5 units of cloth, what happens and why?
Error redoError review: a student claims that because X has an absolute advantage in both goods, there can be no gains from trade. What is wrong?

03　Answers and one-line notes

#	Answer	One-line note
1	Rice (X needs 2 hours against Y’s 6)	Absolute advantage compares hours needed for the same good: X uses 2 hours for rice against 6, but 4 hours for cloth against 3, so it leads in only one good.
2	0.5 units of cloth	One unit of rice takes 2 hours, and the same 2 hours would make 2 divided by 4 = 0 units of cloth, so 0.5 units of cloth are given up.
3	0.5 units of rice	One unit of cloth takes 3 hours, which could instead make 3 divided by 6 = 0.5 units of rice, so the opportunity cost is 0.5 units of rice.
4	X should specialise in rice and Y in cloth	X’s cost of rice is 0.5 cloth against Y’s 2, while Y’s cost of cloth is 0.5 rice against X’s 2, so each should produce the good it sacrifices least to make.
5	Before: 8 rice and 7 cloth. After: 12 rice and 8 cloth, i.e. 4 more rice and 1 more cloth	With 24 hours X can make 12 rice or 8 cloth, and Y can make 0 rice or 8 cloth; full specialisation adds 4 rice and 1 cloth in total, which is where the gains from trade come from.
6	Between 0.5 and 2 units of cloth per unit of rice	Inside X one unit of rice is worth only 0.5 cloth, and inside Y it costs 2 cloth, so any price between the two leaves both better off than autarky.
7	8 rice and 4 cloth, i.e. 2 more rice and 1 more cloth than the autarky bundle of 6 rice and 3 cloth	X makes 12 rice, sells 4 for 4 cloth and keeps 8 rice and 4 cloth; against the autarky bundle of 6 rice and 3 cloth the gain is 2 rice and 1 cloth.
8	4 rice and 4 cloth, which is 2 more rice than the autarky bundle of 2 rice and 4 cloth	Y makes 8 cloth, sells 4 for 4 rice and keeps 4 rice and 4 cloth; cloth is unchanged from autarky but rice is 2 higher, so the whole gain shows up as rice.
9	Y refuses and no trade occurs, because Y can make one unit of rice itself by giving up only 2 units of cloth, cheaper than 2.5	Once the price exceeds Y’s domestic opportunity cost of 2 cloth, Y is better off producing rice itself, so demand disappears; the other country’s domestic cost caps the terms of trade.
10	Wrong: gains depend on comparative advantage, not absolute advantage; different opportunity costs still let specialisation raise total output	Even if one country is more efficient in everything, its resources are still limited; concentrating on the good it sacrifices least for lets the other country take the other good, and joint output rises.

04　What to do after marking

After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
Repeat the same item two days later; move to the next paper only when both attempts are correct.
Parents only need the answer and note columns; there is no need to explain every item.

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