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Absolute Advantage

Absolute advantage is when a party can produce more of a good or service using the same amount of inputs as its competitors. Or, a country that requires a lower cost to produce the same amount of a goods as another country. Absolute advantage shows the differences in the absolute costs of producing goods between countries.

Absolute advantage can occur when a country has access to cheaper natural resources, better-trained workers, or more advanced equipment. Assuming that all units are sold, it can allow a producer to earn more profits. However, gains from international trade are not determined by absolute advantage¹.

Even if a country has absolute advantage in all the goods it produces, it cannot have a comparative advantage in both simultaneously. Gains from trade and specialization actually depend on a country’s pattern of comparative advantage, not absolute. Absolute advantage should be studied with comparative advantage to understand the gains from international trade.

 

References:

1. Ragan, Chrisopher. Macroeconomics/Christopher T.S. Ragan, Richard G. Lipsey. – 13th Canadian ed. 

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