Final answer:
An absolute advantage exists when one nation can produce goods more cheaply than another nation. It is the result of using fewer resources to produce the same good. Comparative advantage determines which goods a country should specialize in and trade with other countries to maximize total production and consumption.
Step-by-step explanation:
An absolute advantage exists when one nation can produce goods more cheaply than another nation. This means that the country can produce more of a good per unit of labor compared to the other country. It is the result of using fewer resources to produce the same good, which can be a natural endowment or a productivity edge.
For example, if Country A can produce 10 cars using 100 hours of labor, while Country B can produce 5 cars using the same 100 hours of labor, then Country A has an absolute advantage in car production.
It is important to note that absolute advantage is different from comparative advantage, which considers the opportunity cost of producing goods. Comparative advantage determines which goods a country should specialize in and trade with other countries to maximize total production and consumption.