Absolute advantage is when a person, business, or country can produce something cheaper than others, while comparative advantage is when a product can be produced more efficiently than others. Comparative advantage is beneficial for trading products and reducing opportunity cost. An example is Country A’s advantage in shoe production and Country B’s advantage in pencil production. Another example is Country A’s advantage in orange juice production due to its proximity to raw materials.
Absolute advantage is used to describe a situation where a person, business entity, or country can produce something cheaper than others. Comparative advantage refers to a situation where the same type of commodity can be produced at a lower opportunity cost than others. The difference between absolute advantage and comparative advantage lies in the difference between the advantages inherent in the two factors. Absolute advantage focuses on cost advantage, while comparative advantage focuses on opportunity cost. Furthermore, absolute advantage offers more advantages in trade than comparative advantage.
Comparative advantage occurs when a product can be produced more efficiently than other people, companies or countries producing the same good. The main benefit of comparative advantage in economics is the idea of trading a product that one is more efficient at producing for a product that is less efficient at producing. This saves time, materials and labor while reducing the opportunity cost of producing the good. Opportunity cost reduction shows a difference between absolute advantage and comparative advantage.
An example of this difference is if Country A can produce 10 pairs of shoes per hour and two sets of pencils per hour, while Country B can produce 100 pairs of shoes per hour and one pair of shoes per hour, both countries have a comparative advantage in different articles. While country A has a comparative advantage in shoe manufacturing, country B has a comparative advantage in pencil manufacturing. Both countries can mutually benefit from trading these two items in order to compensate for items that are less efficient in production.
Another example of the difference between absolute advantage and comparative advantage is the type of advantages associated with an absolute advantage related to the production of an item. One such variance could be that Country A has an abundant supply of fresh oranges supplied by local farmers, while Country B does not have the type of climate that allows oranges to grow and has to import its oranges from other countries. Country A has an absolute advantage over Country B in the production of orange juice simply because it can get oranges much cheaper and without spending too much manpower, including transport logistics. Country A’s absolute advantage is due to its close proximity to the source of the raw material, unlike Country B, which has to put in the extra effort just to get the raw material needed to produce the same final product. This makes it more prudent for country B to import the finished product from country A.
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