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Suppose I have two teachers: Adam and Bob. Suppose Adam takes 20 hours to lecture and 30 hours to grade, while Bob takes 100 hours to lecture and 60 hours to grade.

In absolute terms, Adam is clearly a better teacher because he does the same work in less time. But supposedly they could still benefit from trade and specialization of labor.

Why does only relative price and not absolute price matter in international trade models?

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  • $\begingroup$ To be clear, absolute 'price' (here it is cost) does matter. Things will be different in terms of output if Adam only takes 1 hour to lecture. $\endgroup$ – Giskard Mar 8 '16 at 18:10
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    $\begingroup$ @StanShunpike, in fact, all prices are relative. The important thing is not prices but comparative advantage in costs. Trade allows for specialisation. Some resources are not transferable. Even the producer who is less efficient in anything has to do something because it is better compared to wasting resources, i.e. his / her time. $\endgroup$ – garej Mar 8 '16 at 19:27

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