ABSOLUTE ADVANTAGE VS.

COMPARATIVE ADVANTAGE

When we compare comparative advantage vs. absolute advantage in economics, it is

important to note that the two concepts do not necessarily go against each other.
Absolute advantage focuses on efficiency, whereas comparative advantage focuses
on opportunity cost.

Absolute Advantage
Occurs when one country produces better quality goods at lower cost than
another. It also refers to the uncontested superiority of a country or business to
produce a particular good better. Absolute advantage is essentially about being
better at producing a given product. In economics terms, if one country is more
efficient at producing a certain good, we say that country has an absolute advantage.

Comparative Advantage
Occurs when one country is able to produce goods at a lesser opportunity
cost than the other. It is based on the opportunity cost of producing a good. Suppose
a Country can produce a particular good at a lower opportunity cost (by losing an
opportunity to produce other goods) than any other country. It introduces
opportunity cost as a factor for analysis in choosing between different options for
production diversification. Comparative advantage is all about opportunity cost.
What does the economy have to forgo to produce a given product? In economics
terms, the country that forgoes the least benefits to produce a certain product has
the comparative advantage over other countries that forgo more benefits. For this
reason, economists prefer comparative advantage to absolute advantage.

Basis Absolute Advantage Comparative Advantage

Definition The ability of a country to
produce more goods with
the same amount of
resources than another
country
Benefits 1. Trade is not mutually
beneficial
2. Benefits the Country
with absolute advantage
Cost The absolute cost of
producing goods impacts if
the country has an
absolute advantage
Economic Nature It is not mutual and
reciprocal
The ability of the country
to produce goods better
than another country with
the same amount of
resources
1. Trade is mutually
beneficial
2. Benefits of both the
countries
The opportunity cost of
producing goods impact
the Country’s comparative
advantage
It is mutual and reciprocal
Similarities between Absolute Advantage and Comparative Advantage
While the two concepts are not necessarily against each other, there are only two
significant similarities between absolute advantage and comparative advantage.
Let's describe them.

1. Both absolute advantage and comparative advantage are aimed at increasing

output.

Absolute advantage aims to increase output domestically by producing a

good the country is most efficient in. Comparative advantage also aims to
increase national output by combining both domestic production and imports.

2. Both concepts can be applied to individuals, businesses, or economies as a

whole.

The concepts of absolute advantage and comparative advantage apply to all

economic agents due to the concept of scarce resources and the need to maximize
the benefits from these resources.

Key takeaways

 Absolute advantage is the ability of an economy to produce a certain good more

efficiently than another economy can.
 Comparative advantage is the ability of an economy to produce a given product
at a lower opportunity cost than other economies would incur in producing the
same product.
 We compare the quantities of output between countries, and the country with
the larger quantity wins the absolute advantage.
 Comparative advantage is determined by calculating to find the lower
opportunity cost.