Question

Please share an experience identifying absolute and comparative advantage, and how you capitalized on gains from trade (or how you could have). Please include some numeric values to indicate both absolute and comparative advantages.

Answer 1

Absolute advantage: it is a situation where the country have an absolute advantage in anything like technology, skills, know how methods of production, natural resources, etc. Let take an example of Arab nations like Kuwait, Saudia Arab, UAE, etc. these countries have an absolute advantage in natural resource which is oil.

These countries with their absolute advantage in oil which gives them the separate identity in the world. They extract oil and export them to other nations and earn the huge amount of profit out of it.

Comparative advantage: It means the one nation is comparatively better than the other nation in technology, skills, methods of producing, etc.

For example there are two countries India and Indonesia.

S.No	Textile	Rubber
India	100	50
Indonesia	50	100

Since India has comparative advantage in Textile where they produce 100 units of textile and only 50 units of Rubber. But Indonesia has comparative advantage in rubber than in textile. They produce 50 units of textile and only 100 units of Rubber.