To define comparative advantage it is useful to first define opportunity cost. Each of these are defined formally below using the notation of the Ricardian model. The concepts are presented in the following order. Opportunity Costs Comparative Advantage Labor Productivity Labor productivity is defined as the quantity of output that can be produced with a unit of labor. A country has an absolute advantage in the production of a good relative to another country if it can produce the good at lower cost or with higher productivity.
Absolute advantage compares industry productivities across countries.
The second expression means that labor productivity in cheese in the US is greater than in France. Thus the US generates more pounds of cheese per hour of work. Obviously if then France has the absolute advantage in cheese. Also if then the US has the absolute advantage in wine production relative to France. Opportunity Cost Opportunity cost is defined generally as the value of the next best opportunity.