Exercise 1: Why Absolute Advantage in Everything Doesn't Make Trade Pointless — Possible Solution
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Absolute advantage only measures raw production EFFICIENCY - how much
of a good a country can produce using a given amount of resources
compared to another country. It says nothing on its own about what
each country genuinely gives up to produce one good instead of the
other, which is a real, separate question with its own separate
answer.

Portugal, despite being more efficient at producing both cloth and
wine, still has only a limited amount of real resources (land, labor,
time) available at any one time. Every hour and acre Portugal devotes
to producing cloth is an hour and acre it can't devote to producing
wine instead - a real opportunity cost, exactly as Chapter 1 defined
it. Ricardo's actual insight was that this opportunity cost can differ
between countries even when one country is absolutely better at
producing everything.

If Portugal's own opportunity cost of producing cloth (measured in
wine given up) is genuinely higher than England's opportunity cost of
producing the same cloth, then Portugal is genuinely better off
specializing in wine (its own relatively cheaper opportunity cost) and
trading for England's cloth, rather than producing both itself - even
though Portugal could, in isolation, produce cloth more efficiently
than England ever could on its own. The real gain comes from each
country focusing on whichever good costs it relatively less to
produce, not from whichever good it happens to be absolutely best at
making.

ANSWER: Absolute advantage measures raw efficiency, but trade gains
come from comparative advantage - each country's own relative
opportunity cost of producing one good versus the other. Even though
Portugal is absolutely more efficient at both goods, if its own
opportunity cost of producing cloth (in terms of wine given up) is
higher than England's, Portugal still gains by specializing in wine
and trading for cloth rather than producing everything itself.

WHY THIS WORKS AS AN ANSWER
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This correctly distinguishes absolute advantage (efficiency) from
comparative advantage (relative opportunity cost) and explains why the
second, not the first, determines whether trade genuinely benefits
both parties.