Absolute advantage is the ability to produce an increased number of goods and services at better quality than competitors. In contrast, Comparative Advantage signifies the ability to manufacture goods or services at a relatively lower opportunity cost. Show
In International trade, absolute advantage and comparative advantage are widely used terms. These advantages influence the decisions taken by the countries to devout their natural resources and produce specific goods. Table of contents
Absolute AdvantageAbsolute advantage is when a country can produce particular goods at a lower cost than another country. Few examples are:
You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked Comparative AdvantageComparative advantageComparative AdvantageIn order to determine comparative advantage, the opportunity cost of each item from each country needs to be calculated. Then, on a comparative table, these costs are plotted to get the comparative advantage.read more is based on the opportunity cost of producing a good. Suppose a Country can produce a particular good at a lower opportunity cost (by losing an opportunity to produce other goods) than any other country. In that case, it is said to have a comparative advantage. Few examples of comparative advantage are:
Absolute Advantage vs Comparative Advantage InfographicsLet’s see the top differences between absolute vs comparative advantages. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked Key Differences
Absolute vs Comparative Advantage Comparative TableBasisAbsolute AdvantageComparative AdvantageDefinitionThe ability of a country to produce more goods with the same amount of resources than another countryThe ability of the country to produce goods better than another country with the same amount of resourcesBenefits1. Trade is not mutually beneficial2. Benefits the Country with absolute advantage1. Trade is mutually beneficial 2.Benefits of both the countriesCostThe absolute cost of producing goods impacts if the country has an absolute advantageThe opportunity cost of producing goods impact the Country’s comparative advantageEconomic NatureIt is not mutual and reciprocalIt is mutual and reciprocal ExampleConsider two countries, A and B, which have the following dynamics for the production of Maize and Corn. The output for an equal number of resources per day is as below: MaizeCornCountry A3015Country B510
ConclusionIt should be understood that while the theoretical differences between absolute and comparative advantage are easy to understand but practically, it is more complex. No nation has an advantage in the production of each good. Also, no nation has exclusive overproduction of goods. Many factors drive the manufacturing and production of goods, making certain goods more efficient in some nations. A nation can produce some goods efficiently but may not transport and market them in other countries. Hence, these both could be better understood when countries have equal resources. Video on Absolute Advantage vs Comparative Advantage
Recommended ArticlesThis has been a guide to the Absolute Advantage vs. Comparative Advantage. Here we discuss the top differences between Absolute and Comparative Advantage and infographics and a comparative table. You may also have a look at the following articles – What if one country has an absolute advantage in both products?Even when one country has an absolute advantage in all products, trade can still benefit both sides. This is because gains from trade come from specializing in one's comparative advantage.
Can you have absolute advantage in both goods?However, a country can have an absolute advantage in all goods. An absolute advantage exists when a country is simply the best (most efficient) in producing a product or service. It is in the best interest of countries to produce the goods and services in which they have the highest comparative advantage.
What does it mean for a country to have an absolute advantage in producing a product?A country has an absolute advantage in producing a good over another country if it uses fewer resources to produce that good. Absolute advantage can be the result of a country's natural endowment.
What does it mean for one country to have an absolute advantage over another in trade?A country has an absolute advantage over another country if it can produce a given product using fewer resources than the other country needs to use.
|