What is the difference between absolute advantage and comparative advantage? …

Business Questions
Short Answer
Step by Step Solution
Business Questions

What is the difference between absolute advantage and comparative​ advantage? A. Absolute advantage is influenced by the law of increasing relative cost while comparative advantage is not. B. Comparative advantage is when someone can produce more of a good using a given quantity of inputs while absolute advantage is when someone can produce a good at a lower opportunity cost. C. Comparative advantage applies to all of the resources while absolute advantage only applies to human capital. D. Absolute advantage is when someone can produce more of a good using a given quantity of inputs while comparative advantage is when someone can produce a good at a lower opportunity cost.

Short Answer

Absolute advantage refers to the ability to produce more of a good or service with the same resources compared to competitors, emphasizing production efficiency. In contrast, comparative advantage focuses on producing goods at a lower opportunity cost, leading to specialization and efficient resource allocation. Both concepts guide decision-making in production and trade.

Step-by-Step Solution

Step 1: Understand Absolute Advantage

Absolute advantage is the ability of a party‚ÄöAibe it an individual, firm, or country‚ÄöAito produce more of a good or service than competitors while utilizing the same resources. This concept emphasizes efficiency in production. In essence, the more output produced using equal resources signifies a strong absolute advantage.

Step 2: Grasp Comparative Advantage

Comparative advantage focuses on the capability to produce a good or service at a lower opportunity cost than others. This means that even if one party can produce more of both goods, they may still benefit from specializing in the good with the lower opportunity cost. This principle highlights the importance of efficiency in resource allocation across different tasks.

Step 3: Analyze the Relationship Between Both Concepts

While both concepts relate to production efficiency, they serve different purposes in economics. For example:

  • Britain may have an absolute advantage in producing both cloth and wheat due to less labor required.
  • However, the United States can possess a comparative advantage in wheat production if its opportunity cost for growing wheat is lower compared to Britain.
By identifying these advantages, parties can decide how best to allocate resources for optimal production and trade.

Related Concepts

Absolute Advantage

The ability to produce more of a good or service than competitors using the same resources

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than others

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Table Of Contents
  1. What is the difference between absolute advantage and comparative​ advantage? A. Absolute advantage is influenced by the law of increasing relative cost while comparative advantage is not. B. Comparative advantage is when someone can produce more of a good using a given quantity of inputs while absolute advantage is when someone can produce a good at a lower opportunity cost. C. Comparative advantage applies to all of the resources while absolute advantage only applies to human capital. D. Absolute advantage is when someone can produce more of a good using a given quantity of inputs while comparative advantage is when someone can produce a good at a lower opportunity cost.

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