Difference between absolute advantage and comparative advantage – Advantages of international Business | Management Notes

Comparative Vs Absolute Advantage
Advantages of international Trade
International Business
Management Notes

Absolute advantage and comparative advantage are two important concepts in international trade that largely influence how and why nations devote limited resources to the production of particular goods. They describe the basic economic benefits that countries get from trading with one another.Absolute advantage is a condition in which a country can produce particular goods at a lower cost in comparison to 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.

Some of the major difference between comparative advantage and absolute advantage are as follows:

Basis

Comparative Advantage

Absolute Advantage

Definition Comparative advantage is a ability of a country to produce particular goods at a lower opportunity cost in comparison to other countries. Absolute advantage refers to the ability of a country to produce a good more efficiently than other countries with a low marginal cost.
Trading In comparative advantage ,trading is mutually beneficial for two countries. In absolute advantage,trading is not mutually beneficial for two countries.
Volume of goods Comparative advantage allows a country to produce goods better than another nation with the same amount of resources. Absolute advantage allows a country to produce higher volume of goods with the given amount of resources.
Consideration Comparative advantage considers overall production of a nation during a given time frame. Absolute advantage considers advantage of producing numerous goods.
Factor Involved In comparative advantage,the factor  involved is opportunity cost. In absolute advantage,the factor  involved is cost .
Economic Nature Comparative advantage is mutual and reciprocal. Absolute advantage is not mutual or reciprocal.

Post Your Comment Here

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.