Difference Between Absolute and Comparative Advantage

Absolute vs Comparative Advantage

Absolute advantage and comparative advantage are two terms that are widely used in international trade. Both terms deal with production, goods and services.

Absolute advantage is a condition in which a country can produce particular goods at a lower cost in comparison to another country. On the other hand, comparative advantage is a condition in which a country produces particular goods at a lower opportunity cost in comparison to other countries.

While absolute advantage is a condition where the trade is not mutually beneficial, comparative advantage is a condition in which the trade is mutually beneficial.

Comparative advantage can be described as the ability of a particular country to produce a certain product better than another country. Comparative advantage generally compares the output of production of the same type of goods or services between two countries

A country will have an absolute advantage over another country when it produces the highest number of goods after the same resources are supplied to both of them. Absolute advantage also means more goods and services in an efficient way.

Unlike absolute advantage, comparative advantage also looks into the overall production of the services or goods within a time frame. When compared to comparative advantage, absolute advantage is concerned with multiple goods.

While cost is a factor involved in absolute advantage, opportunity cost is the factor that is involved in comparative advantage. Unlike absolute advantage, comparative advantage is always reciprocal and mutual.

It was Adam Smith who first described absolute advantage in the context of International trade. Robert Torrens described comparative advantage for the first time in 1815 in an essay about Corn Laws. But the concept of absolute advantage is attributed to David Ricardo, who explained the cncept in his book ‘On the Principles of Political Economy and Taxation’.

Summary:

1. Comparative advantage can be described as the ability of a particular country to produce a certain product better than another country. A country will have an absolute advantage over another country when it produces the highest number of goods after the same resources are supplied to both of them.
2. While absolute advantage is a condition where the trade is not mutually beneficial, comparative advantage is a condition in which the trade is mutually beneficial.
3. While cost is a factor involved in absolute advantage, opportunity cost is the factor that is involved in comparative advantage.
4. Unlike absolute advantage, comparative advantage is always reciprocal and mutual.

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