Micro Foundations · intermediate
What moves on the Absolute vs. Comparative Advantage diagram
Human capital investment expands Foreign's production possibilities. Absolute catch-up does not eliminate gains from trade, which depend on comparative (relative) advantage.
Both frontiers start in their usual positions, each side specializing by opportunity costopportunity costWhat you give up to get something, the value of the next-best alternative you didn't choose..
Foreign invests heavily in schooling and worker training.
Foreign's frontier edges outward as its workforce becomes more productive.
Even as Foreign catches up in absolute terms, trade still pays: it is relative opportunity costs that drive the gains.
Examiners ask this as: catch up, education investment, skills program, development, workforce training.
Other scenarios on Absolute vs. Comparative Advantage