Question

Explain the difference between absolute advantage and comparative advantage. Which is the basis for international trade, and why? (Please Type Answer, No Handwriting)

Answer 1

Difference between absolute advantage and comparative advantage are
1. Absolute advantage is a condition in which a country can produce particularly goods at a lower cost in comparison another country. On the other hand , comparative advantage is a condition in which a country produces particular goods at a lower opportunity cost in comparison to other countries.
2. Absolute advantage is a condition where trade is not mutually beneficial ,while the comparative advantage is a condition where trade is not mutually beneficial.
3. Comparative advantage can be best described as the ability of a particular country to produce a certain product better than another country. A country will have an absolute advantage over another country when it produces highest number of goods given the same resouces available .
4. Cost is a factor involved in absolute advantage , opportunity cost is the factor involved in the comparative advantage.
The basis for international trade is the comparative advantage . Because a country can have the absolute advantage in producing both goods but a country cannot have the comparative advantage in both goods.