Absolute Advantage

  • Category: Business
  • Words: 470
  • Grade: 100

        The ability to produce a single product more efficiently than any other nation is an absolute advantage. The ability to produce a product more efficiently than another product is a comparative advantage. The difference in absolute advantage and comparable advantage is that for absolute advantage there is no other country that can produce the product more efficiently based on cost and productivity. Comparable advantage does not exclude the ability of another country or entity to produce the same product but implies that due to the cost or resources that will be used to produce the product it is not resource efficient and should be produced or provided by another company or person.
        An example of absolute advantage is the ability of Costa Rica to produce bananas more cheaply than Canada. While Canada can produce more wheat than Costa Rica. Therefore, each has an absolute advantage over the other in producing a specific product or good. Another example, the United States has an absolute advantage in cheese production relative to France while France has the absolute advantage over the US in producing wine. An example of comparable advantage is that Portugal is more productive than England in the production of both cloth and wine. If Portugal is twice as productive in cloth production relative to England but three times as productive in wine, the Portugal¡¯s comparative advantage is in wine, the good in which its productivity advantage is greatest. Similarly, England¡¯s comparative advantage good is cloth.
        Comparative advantage can be having technical employees that are more difficult to recruit perform technical job duties and having clerical support to assist these individuals with filing and typing. Both are capable of filing and typing but there would be a comparative advantage in the technical employee performing technical assignments. This represents a better use of company resources. Another example is a working couple with children. Both parents are capable of caring for the children during the day but one parent has a comparative advantage over the other for earning money. The parent with the comparative advantage in higher paying employment should go to work and earn the paycheck and the other should stay home and care for the children. Management pays support staff to perform tasks they are capable of doing but there is a comparative advantage in management focusing their time and expertise on managing the company.
        In summary, every country has one product or service it produces better than any other. The difference between absolute advantage and comparative advantage is that absolute advantage applies to the absolute ability of one country to produce a product above another, and comparative advantage applies to the efficiency of one country, company or individual to produce a product more efficiently than another.
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