What's the difference between comparative advantage and absolute advantage?

Question

(Economic's question) an example would be greatly appreciated.

Answer 1

Absolute Advantage means you can produce a good using less resources.

Comparative Advantage means you can produce a good at smaller opportunity cost.

The standard example is 2 countries and 2 products.

Say country A - 1 employee can produce in a week.

2 Cars or 700 shirts

Country B 1 employee can produce

1 Car or 300 shirts.

Country A has an absolute advantage in Cars and in shirts.

But Country B has a Competitive Advantage in Cars as 1 car = 300 shirts to them while 1 car = 350 shirts in Country A.

Answer 2

Under the principle of absolute advantage, developed by Adam Smith, one country can produce more output per unit of productive input than another. With comparative advantage, even if one country has an absolute advantage in every type of output, the disadvantaged country can benefit from specializing in and exporting the product(s) with the largest opportunity cost for the other country.

Answer 3

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Rob has absolute advantage in both picking fruit and catching fish because he picks 100 fruits which is higher than what John can pick(60) and Rob can catch 150 fish which is more than what John can catch(20). But John has a comparative advantage in Fruit picking. He needs to give up just 1 fish to pluck 3 fruits. However, if Rob foregoes catching 1 fish and use the time saved to lpuck fruits, he would not be able to pluck even 1 fruit. On the otherhand Rob has comparative advantage in catching fish. He can catch 15 fish by foregoing plucking 10 fruits. As against this John would need to give up plucking as many as 45 fruits to catch 15 fish. It is because of this, ROB will concentrate on catching fish while John on plucking flowers and tarde among themselves and benefit. This aspect however is beyond the scope of the question. Sorry.

Answer 4

Absolute Advantage-Adam Smith 1776
“labor theory of value”. The only time nations don’t trade is when one nation is better at producing both goods. Maximize goods and services not treasure, said different countries produce some goods more efficiently than others. To increase global efficiency you need specialization plus internal free trade. Compares the productivity of different producers and economies. Producers that require a smaller quantity of input to produce a good has a absolute advantage. To increase specialization they use natural or acquired advantage.
Countries increase efficiency because
labor becomes more skilled by repetition
no loss of time in switching production
development of more effective working methods
natural: climate, natural resources, labor force (intelligence and age)/two countries with opposite natural advantages should trade
Acquired Advantage: manufactured goods and services are the most contemporary trade (few agricultural) they produce in product technology and process technology

Comparative Advantage- David Ricardo 1817
Countries still trade if one country has absolute advantage in both goods. The “weaker” country should concentrate in the product in which it has less disadvantage. This theory uses opportunity costs with relative commodity pricing. If countries have an equal marginal rate of transformation that means the countries should not trade/so the same opportunity cost in both products.
Basic assumptions
Full employment
economic efficiency
two countries/ two commodities
transport cost none



Differences and similarities….

Differences: Absolute advantage refers to differences in productivity of nations, while comparative advantage refers to differences in opportunity costs.
If one country has a comparative advantage over another, both parties can benefit from trading because each party will receive a good at a price that is lower than its own opportunity cost of producing that good
Absolute advantage says.. A country should not trade if one nation has comparative advantage in both commodities. This idea is followed by classical economists, whereas non-classical economists prefer to use comparative advantage. Comparative advantage uses opportunity costs and finds advantage with relative commodity prices. Nations can still trade if one country has a comparative advantage in both goods as long as that don’t have equal opportunity costs (or MRT). Non classical economists prefer Comparative advantage.

Similarities: Both theories use two countries and two commodities when determining if two countries should trade. Both theories use the “Labor theory of value” to some extent.