Basic Economic Concepts : Absolute And Comparative Advantage Essay

2016 Words9 Pages
Basic Economic Concepts Absolute and Comparative Advantage Absolute Advantage is the comparison of productivity of a person, company, or nation to another person, company, or nation and the ability to produce with fewer inputs (what is used to make the product) than another producer. Comparative Advantage is the opportunity costs (what must be given up to obtain an item) between two producers and the ability to produce at lower opportunity costs than another producer. Absolute Advantage can be found in both goods that are produced by an individual, company, or nation, while Comparative Advantage is impossible to be found in both goods that are produced by an individual, company, or nation. Although Absolute Advantage is important in international trade, Comparative Advantage plays a larger part and is a key factor in international trade. N. George Mankiw states, “The principle of comparative advantage states that each good should be produced by the country that has the smaller opportunity cost of producing that good” (2014, p. 58). The downfall is that some individuals may be worse off from international trade, while the country’s overall well-being is better off. Absolute and Comparative Advantage are a large part of international trade, which can be beneficial to the economy as a whole. A company in one country being able to use fewer inputs in productivity than another company in a different country is one of the benefits of Absolute Advantage in international

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