What Is a Comparative Advantage Compared to an Absolute Advantage?


Quick Answer

According to Library of Economics and Liberty, comparative advantage is when someone provides a good or service at a lower cost than his competitors. Absolute advantage occurs when a product or service provider is the best at producing a good or service over its competitors.

Continue Reading
What Is a Comparative Advantage Compared to an Absolute Advantage?
Credit: Blend Images - Erik Isakson Brand X Pictures Getty Images

Full Answer

Shmoop explains this in terms of farming; in this case, it is not conducive for a country to compete against another country for a comparative advantage, when the factors leading to the advantage are environmental. For example, if the soil, temperature, and amount of rain yields an environment necessary to grow a certain fruit, then it is cheaper for that country to grow and export that fruit over any other country. Another country can attempt to compete by importing soil, building shade, etc., but this would make the process more expensive. Shmoop states that if a country produces a good or service as a result of an advantage, this is called Specialization.

If an absolute advantage is being sought, the goal is efficiency. A country may compete against other countries in the production of oil. The country that is the best at producing oil will sustain an absolute advantage. This country has discovered a quick and low-cost solution to supply oil, leading to the advantage.

Learn more about Economics
Related Videos

Related Questions