Question

Explain the difference between comparative and absolute advantage.

Explain the difference between comparative and absolute advantage.

Homework Answers

Answer #1
  • Comparative advantage and absolute advantage are the two concepts used during the international trade.
  • Comparative advantage refers to the ability of a country to produce goods and services at a lower opportunity cost than other competitive countries.
  • While absolute advantage refers to the ability of a country to produce goods and services more efficiently than other countries by using minimum resources to produce them.
  • When comparative advantage is used, we compare two countries in terms of the how much productive they are while absolute advantage is used to compare two countries in terms of being more productive than the other.
  • Firms that have absolute advantage will be able to produce goods and services with minimum resources than other firm's while firms that have comparative advantage will be able to produce goods and services with lower cost.
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