What is the difference between absolute advantage and comparative advantage in trade?

Question

This is for an economics course.

Answer 1

A country has a comparative advantage in those goods it produces cheaply. cheaply is defined as giving up fewer other potential products.

There are two countries, A and B. A can produce 1,000 barrels of oil or 100 bushels of wheat or some combination in between. B can produce 10 barrels of oil or 50 bushels of wheat or some combination in between.

Because A has more resources and can outproduce B at both, A has an absolute advantage in each.

However, A has a comparative advantage in oil only because to produce a bushel of wheat, A has to give up 10 barrels of oil. B only has to give up 1/5 barrel of oil to produce a bushel of wheat. B thus produces wheat cheaper than A, and has a comparative advantage in wheat. In a perfect free trade world, B should produce only wheat and trade with A to get oil.

Hope this helps; the explanation is better with a chalk board.

Answer 2

an absolute advantage is when a country's cost of production in a certain good or service is lower than an other for example if spain produces 10 widgets at 3 labor hours and england produces 10 widgets at 4 labor hours spain has an absolute advantage in producing widgets as spain's costs are absolutely lower than england's a comparative advantage is when a country's relative cost of a good is lower than another's back to the example of the widgets spain 3 hours for 10 widgets and england 4 hours for 10 widgets also there is another commodity lets say corn in which spain produces 10 bushels with 6 labor hours and england 7 labor hours for 10 bushels the comparitive cost for england to produce 10 bushels of corn is 17.5 widgets (as 7hrs corn/4hrs widget * 10 widgets) and for spain comparitive cost of 10 bushels is 20 widgets (as 6hrs corn/3hrs widget * 10 widgets) so england has a comparitive advantage in the production of corn as it only costs them 17.5 widgets to produce 10 bushels of corn instead of the 20 bushels it costs spain... so if they traded spain would produce widgets and england would produce corn