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Explain what are the differences between absolute advantage and comparative advantage?
Answer:
Absolute advantage and comparative advantage are two basic concepts to international trade. Under absolute advantage, one country can produce more output per unit of productive input than another can. With comparative advantage, if one country has an absolute (dis)advantage in every type of output, the other might benefit from specializing in and exporting those products, if any exist.
A country has an absolute advantage economically over another, in a particular good, when it can produce that good at a lower cost. Using the same input of resources, a country with an absoluteadvantage will have greater output. Assuming this one good is the only item in the market, beneficial trade is impossible. An absolute advantage is one where trade is not mutually beneficial, as opposed to a comparative advantage where trade is mutually beneficial.
A country has an absolute advantage economically over another, in a particular good, when it can produce that good at a lower cost. Using the same input of resources, a country with an absoluteadvantage will have greater output. Assuming this one good is the only item in the market, beneficial trade is impossible. An absolute advantage is one where trade is not mutually beneficial, as opposed to a comparative advantage where trade is mutually beneficial.
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