Question

Dicuss between comparitive advantage and Absolute Advantage .which one is bettter for Internatinonal trade and why?

Answer 1

Absolute advantage is the ability of a country to produce goods more efficiently i.e more goods are produced with the less resources as compared to the competitve country. Due to will that country can sell goods at less price than other country who dont have absolute advantage.

Comparative advantage on the other hand refers to the ability of a country to produce goods at lower opportunity cost than the other country.

A country with absolute advantage can produce at lower marginal cost while country with comparative advantage can produce at lower opportunity cost.

For international trade comparative advantage is better. Even if the country has absolute advantage of producing good it should import that good from the country having comparative advantage, if the opportunity cost of importing that is lower than the opportunity cost of producing that good