Question

Discuss the differences between absolute advantage and comparative advantage.Please provide at least one example of each.

Answer 1

Answer-Absolute advantage:- The ability to produce more of a given goods and services by using less of a given resource or allocated resources than a competing unit in the economy whereas in case of  Comparative advantage it is stated that the ability of one firm or production unit to produce a particular or type of good or service at a low marginal cost as well as with opportunity cost over the other competitors in the market.

Example of Absolute Advantage-If Sam is producing 5 jeans in 1 hour in a company whereas Ruchi is producing 8 jeans in one hour than Ruchi is having an absolute advantage over producing jeans.

Comparative Advantage-Oil producing countries or countries who are fully involved in the production of crude oils, have a comparative advantage in chemicals as compare to non-productive countries of oils. Their locally-produced oil provides a cheaper or less costly source of material for chemicals when compared to countries without it.