Absolute Advantage
Definition
Absolute advantage refers to a situation where one country can produce a good or service more efficiently than another country, using the same amount of resources.
Analogy
Imagine two friends, Alex and Ben. Alex can bake 10 cookies in an hour, while Ben can only bake 5 cookies in the same time. In this scenario, Alex has an absolute advantage in baking because he can produce more cookies with the same amount of time.
Related terms
Comparative Advantage: Comparative advantage is when one country has a lower opportunity cost in producing a particular good or service compared to another country.
Terms of Trade: Terms of trade refer to the ratio at which countries exchange goods and services with each other.
Specialization: Specialization occurs when individuals, businesses, or countries focus on producing specific goods or services that they have a comparative advantage in.
"Absolute Advantage" appears in:
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Practice Questions (2)
- Which of the following statements is true regarding absolute advantage?
- What is the primary focus of determining absolute advantage in input problems?
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