Help: Economics - What is the difference between absolute advantage and comparative advantage?
What is the difference between absolute advantage and comparative advantage?
- 1 decade agoFavorite Answer
Absolute advantage is when one party can produce more than another party. For example, if Japan can produce 10 cars per hour and the US can only produce 5, Japan has the absolute advantage.
Comparative advantage is when one party can produce something at a lower opportunity cost - for example, Japan produces 10 cars an hour but sacrifices the manpower that could otherwise be used to make 20 refrigerators in that same hour. The US only produces 5 cars per hour and gives up the manpower that could otherwise be used to produce 5 fridges per hour. In that case for every car Japan makes they "give up" 2 fridges, but for every car the US makes they only "give up" one fridge. Therefore they have the comparative advantage.