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Understanding Absolute Advantage in Economics

The document discusses the principle of absolute advantage in economics. Absolute advantage refers to the ability of an entity like an individual, firm, or country to produce a greater quantity of a good using the same amount of resources as competitors. For example, the United States produces more wine than Italy but Italy has an absolute advantage in wine production because it can produce more gallons in the same amount of time. Absolute advantage explains why trade between entities can be mutually beneficial, as each has advantages in producing certain goods and services.

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Xyza Faye Regalado
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77 views2 pages

Understanding Absolute Advantage in Economics

The document discusses the principle of absolute advantage in economics. Absolute advantage refers to the ability of an entity like an individual, firm, or country to produce a greater quantity of a good using the same amount of resources as competitors. For example, the United States produces more wine than Italy but Italy has an absolute advantage in wine production because it can produce more gallons in the same amount of time. Absolute advantage explains why trade between entities can be mutually beneficial, as each has advantages in producing certain goods and services.

Uploaded by

Xyza Faye Regalado
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

In economics, the principle of absolute advantage refers to the ability of a party (an individual, or

firm, or country) to produce a greater quantity of a good, product, or service than competitors, using
the same amount of resources.

Prinsipyo ng lubos na kalamangan (Absolute Advantage)

Ang prinsipyong ito ay nagsasaad sa isang bansa na magpakadalubhasa sa paglikha ng produkto


na magdudulot ng malaking kita dahil mas mura ang paggawa nito kumpara sa paglikha ng ibang
produkto.

BREAKING DOWN 'Absolute Advantage'


Here are some examples of how absolute advantage works:

1. The United States produces 700 million gallons of wine per year, while Italy produces 4 billion
gallons of wine per year. Italy has an absolute advantage because it produces many more gallons
of wine (the output) in the same amount of time (the input) as the United States.
2. Jane can knit a sweater in 10 hours, while Kate can knit a sweater in 8 hours. Kate has an
absolute advantage over Jane, because it takes her fewer hours (the input) to produce a sweater
(the output).

An entity can have an absolute advantage in more than one good or service. Absolute advantage also
explains why it makes sense for countries, individuals and businesses to trade with one another. Because
each has advantages in producing certain products and services, they can both benefit from trade.

For example, if Jane can produce a painting in 5 hours while Kate needs 9 hours to produce a
comparable painting, Jane has an absolute advantage over Kate in painting. Remember Kate has an
absolute advantage over Jane in knitting sweaters. If both Jane and Kate specialize in the products they
have an absolute advantage in and buy the products they don't have an absolute advantage in from the
other entity, they will both be better off.

ABSOLUTE- Complete, Entire, Whole

Absolute advantage refers to differences in productivity of nations, while comparative advantage refers to differences in
opportunity costs.

The accompanying figure shows the amount of output Country A and Country B can produce in a given period of time .
Country A uses less time than Country B to make either food or clothing. Country A makes 6 units of food while Country B
makes one unit, and Country A makes three units of clothing while Country B makes two. In other words, Country A has an
absolute advantage in making both food and clothing.
Comparative advantage drives countries to specialize in the production of the goods for which they have the lowest
opportunity cost, which leads to increased productivity.

Absolute advantage doesn’t necessarily mean an economy should produce that good. This requires
a country to have a comparative advantage. For example, one country may have an absolute
advantage in many goods but it is not advisable to try and produce everything. It is better to focus on
on goods where you have a relative advantage.

ABSOLUTE ADVANTAGE- when you can produce good more efficiently in the same amount of time
(http://study.com/academy/lesson/absolute-advantage-in-trade-definition-and-examples.html)

Yan yung sa neighbor at Bob 

Resources tend to be different in different countries, and if the resources are different, it tends to
have absolute advantage

Opportunity Cost- What you have to give up in order to have a choice

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