Absolute advantage

Absolute advantage

Absolute advantage refers to the ability of a country to use fewer resources when producing a particular good compared to another country. An absolute advantage happens when a country is more productive compared to another country in terms of producing a good. In other words, a country can use cheaper material, fewer workers, limited time, and cheap labor in producing a good compared to another country.

To calculate the absolute advantage, one has to look at the more significant number of goods being produced by a particular country. The following table can be used to calculate absolute advantage;

Time Needed

Compare

Country

Car or I packet of cheese

United Kingdom

10 20

Japan

20 10

To determine the absolute advantage, one has to look at the country with the bigger production capacity with a minimum number of hours used compared to the other. The country with more significant production of a good with minimum time then is said to have an absolute advantage

Comparative advantage refers to when a country can produce a good at a lower price than another country or when the opportunity cost of production is lower in a particular country.

To calculate the comparative advantage, use calculate the opportunity cost of producing one car in both the United Kingdom and Japan.

Compare

Country

Car or packet of cheese

United Kingdom

10 20

Japan

20 10

The country with the lowest opportunity cost is said to have a comparative advantage. While the same time, the United Kingdom can produce 10 cars or 20 packets of cheese, which makes 10 equivalent to 20 pieces of cheese. To calculate the opportunity cost, one divides 20/10, which will result in 1 car= 2 cheese. This means that to produce one car in the United Kingdom will translate to an opportunity cost of 2 cheeses. To calculate the opportunity pf Japan, you divide both sides with 20. One car has an opportunity cost of 1/5 cheese. Because 1/5 cheese is less than 2 cheese. Japan has a comparative advantage over the United Kingdom.

Even when a country has an absolute advantage over another, the comparative advantage will still lead both countries to gain from trading in one another. In absolute advantage, a state uses few resources, but that does not translate to lower opportunity cost; thus, it will not turn to the country having a comparative advantage.