Absolute Vs Comparative Advantage Examples
People are often confused between the differences between the two concepts and look for clarifications. Comparative advantage write up below will further try to explain the differences between the two.
A country has an absolute advantage if it produces a large number of goods with the same resources as provided to another country whereas the country has a comparative advantage if the country can produce a particular product with better quality at a cheaper price than another country.
Absolute vs comparative advantage examples. Absolute vs comparative advantage. In this example japan may be better served to devote the limited resources and manpower to another industry or other types of vehicles such. This term is applicable to a person firm organization country etc as a whole.
Yes you guessed it right. Absolute advantage and comparative advantage are two words that are often encountered in economics especially international trade. Saudi arabia has an absolute advantage in oil.
Saudi arabia needs fewer worker hours to produce oil absolute advantage see table 1 and also gives up the least in terms of other goods to produce oil comparative advantage see table 4. So in this case country 2 has an absolute advantage over country 1 as country 2 can produce a number of cars per hour than county 1 with the same number of employees. Learn about absolute advantage comparative advantage and their impact on trade.
An example of absolute vs comparative advantage is of saudi arabia and pakistan. Assuming county 1 produces 3 cars per hour with 10 employees and country 2 produces 5 cars with 10 employees. Saudi arabia is extracting around 10 5 million barrels of oil each day whereas pakistan is not extracting too much oil because it does not have much to extract.
Comparative advantage versus absolute advantage absolute advantage is anything a country does more efficiently than other countries. It is the ability to excel at producing goods more efficiently using the same material. In the previous example china had an absolute advantage in both goods 2 pounds of rice versus 1 pound of rice per hour and 3 bananas versus 2 bananas per hour but only had a comparative advantage in producing rice.
Nations that are blessed with an abundance of farmland fresh water and oil reserves have an absolute advantage in agriculture gasoline and petrochemicals. First although a country may be able to have an absolute advantage in producing very good it s not possible for a country to have a comparative advantage in producing every good. In this example there is symmetry between absolute and comparative advantage.
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