[PDF] absolute and comparative advantage

Absolute Advantage: The ability of an actor to produce more of a good or service than a competitor. Comparative Advantage: The ability of an actor to produce a good or service for a lower opportunity cost than a competitor.
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  • What is an example of comparative advantage absolute advantage?

    While France has an absolute advantage in both the production of wine and cloth, Puerto Rico has the comparative advantage in producing wine. This is because if Puerto Rico allocates more of its resources toward wine production and less of its resources toward cloth product, it has a lower opportunity cost than France.

  • Why is it important to know the difference between absolute and comparative advantage?

    The comparative advantage concept is more effective in helping countries decide resource allocation, production, and trade than an absolute advantage. Trade transactions between countries having the absolute advantage are not mutually beneficial.
  • the ability to produce a good at a lower opportunity cost than another entity. For example, for every pillow Owen embroiders his opportunity cost is 2 scarves knitted, while Penny must forego 3 scarves for every pillow she embroiders, so Owen has comparative advantage in embroidering pillows.
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