Question

3.a) Define the terms absolute advantage and comparative advantage.

b) Provide a real-world example from your personal or workplace experiences that demonstrate the concepts of absolute advantage and comparative advantage.

Hint: How household chores are divided-up among the members of your household is often a good example of absolute advantage and comparative

Answer 1

3)

(a) Absolute Advantage :- The capability to produce more of a given product using less of a given resource than a competing entity.

Comparative Advantage :- The ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another.

(b) Example of comparative and absolute advantage :-

I and my sister was given the task to cook dinner and clean the house one night. I'm an accomplished chef but my sister doesn't know the range from the oven. After I vacuum the carpet the dust bunnies have shifted from under the sofa to under the coffee table while my sister can vacuum, dust and polish the silverware faster than I can unwrap the vacuum cleaner cord, then it was better off that I cooked the dinner and my sister cleaned the house.

In this example we can see that we both had a comparative advantage in one activity because we both had an absolute advantage in one activity.