Question

What is the difference between absolute and comparative advantage?

1) Absolute advantage refers to the ability of a country to produce a good or service more efficiently than another country, while comparative advantage refers to the ability of a country to produce a good or service at a lower opportunity cost than another country.
2) Absolute advantage refers to the ability of a country to produce a good or service at a lower opportunity cost than another country, while comparative advantage refers to the ability of a country to produce a good or service more efficiently than another country.
3) Absolute advantage refers to the ability of a country to produce a good or service using fewer resources than another country, while comparative advantage refers to the ability of a country to produce a good or service at a higher opportunity cost than another country.
4) Absolute advantage refers to the ability of a country to produce a good or service at a higher opportunity cost than another country, while comparative advantage refers to the ability of a country to produce a good or service using fewer resources than another country.

Answer 1

Absolute advantage refers to production efficiency, while comparative advantage refers to lower opportunity cost.

Step-by-step explanation:

Absolute advantage refers to the ability of a country to produce a good or service more efficiently than another country, while comparative advantage refers to the ability of a country to produce a good or service at a lower opportunity cost than another country.

For example, if Country A can produce 10 cars in the same amount of time it takes Country B to produce 8 cars, Country A has an absolute advantage in car production.

However, if Country A has to give up producing 5 computers to produce 10 cars, while Country B only has to give up producing 2 computers to produce 8 cars, Country B has a comparative advantage in car production because its opportunity cost is lower.