Question

What is absolute advantage? What is comparative advantage? Is it necessary to have absolute advantage in order to have comparative advantage?

Answer 1

An economy is said to have absolute advantage in the production of a good , when it produces more goods ( irrelevant of how much input is required) than another economy producing the same good.

An economy is said to have comparative advantage when it produces the good at a lesser economic cost than another economy producing the same good. ( The amount produced is irrelevant)

No, it is not necesary to have absolute advantage in order to have comparative advantage. All it requires is that the economy produces the good at a lesser cost than the other economy. Just because an economy producers greater number of goods does not necessarily mean its enjoying comparative advantage.

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