Absolute Advantage Argentina is the more efficient producer
of fish since its total resource cost ($2) is less than Brazil’s ($3),
and so it has the absolute advantage in producing fish. Brazil
has the absolute advantage in producing leather.
Comparative Advantage To know the pattern of comparative
advantage, we must compute the opportunity costs of
production. In Argentina, producing one more kilogram of
leather requires using $5 of resources—the amount that could
have been used to produce 2.5 kg of fish. Thus, producing 1 kg
of leather involves giving up 2.5 kg of fish. In Brazil, however,
one extra kilogram of leather only requires a sacrifice of 1.33 kg
of fish. Since Brazil has the lower opportunity cost for leather (it
gives up the least fish), it has the comparative advantage in
leather production.
The opportunity cost for fish production must be the inverse of
that for leather. In Argentina, one extra kilogram of fish “costs”
0.4 kg of leather. In Brazil, one extra kilogram of fish “costs”
0.75 kg of leather. Since Argentina has the lower opportunity
cost of fish, it has the comparative advantage in fish
production.
Specialization If Argentina and Brazil were to trade with each
other, total production would be increased if each country
specialized in the production of the good in which it has the
comparative advantage. Argentina should produce fish and buy