Share
Explore BrainMass

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. 

Comparative and Absolute Advantage

If you were President of the US and you were making decisions on trading, would you rather have a comparative or absolute advantage in trading? Can you have both a comparative and absolute advantage in trading? If so, what if at all would be the benefit for your country to trade with any other country?

Forecasting is exemplified.

Fred Smith of the Dodge City Bank has received several loan applications from local small businesses. The applications are supported by various documentation, including the business plans of the firms. Each applicant has submitted forecasts of sales and profits for his or her business. Smith must decide which (if any) loans to a

Issues in International Trade and Finances

Chart attached (see attachment). a. Which country has the absolute advantage in beef production? b. Which country has the absolute advantage in computer production? c. Which country has the comparative advantage in beef production? D. Which country has the comparative advantage in computer production? e. What are the limi

Managerial Economics: Hewlett Packard and Compaq Computers

A recent merger of note is that of Hewlett Packard and Compaq Computers. When the merger was announced, it was widely criticized as not making 'economic sense.' Use the material in managerial economics to analyze the reasons for and against the merger, and to assess the performance of the consolidated company since its complet

Absolute or Comparative Advantage

As a manager of a financial planning business you have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 8 phone calls, while Francis can either produce 2 financial statements or answer 10 phone calls. Does either person have an absolute advantage in producing both pr

Absolute advantage

As a manager of a financial planning business you have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 8 phone calls, while Francis can either produce 2 financial statements or answer 10 phone calls. Does either person have an absolute advantage in producing both pr

Two workers with different abilities - Absolute and Comparative Advantage

As a manager of a financial planning business you have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 8 phone calls, while Francis can either produce 4 financial statements or answer 10 phone calls. Does either person have an absolute advantage in producing both pr

The answer to absolute advantage

As a manager of a financial planning business you have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 8 phone calls, while Francis can either produce 2 financial statements or answer 10 phone calls. Does any person have an absolute advantage in producing both p

MANAGERIAL ECONOMICS QUESTIONS

CH 20-4 According to a (hypothetical) government report, the United States can produce three computers or 3,000 cases of win with one unit of resources, while Germany can produce one computer or 5,000 cases of whine with one unit of resources. a. If this report is accurate, will specialization increase the world output of comp

Comparative Advantage / Restrictions on Free Trade

Please answer specifically with details the following questions and for clarity, place my questions before each of your specific responses. 1. How does the "Concept of Comparative Advantage" actually "prove the advantages" of free trade to both countries involved in a transaction? Explain. 2. Are there economicall

Introduction to economics

As a manager of a financial planning business I have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 10 phone calls, while Francis can either produce 3 financial statements or answer 12 phone calls. Does either person have an absolute advantage in producing both p