absolute advantage

Absolute advantage

A person, company or country has an absolute advantage if its output per unit of input of all goods and services produced is higher than that of another person, company or country.

Absolute Advantage

The ability for an economic actor to produce a good or service using fewer resources. For example, if an individual produces 100 bricks using 100 units of labor and a second individual produces 200 bricks using the same amount of labor, the second individual has an absolute advantage in the production of bricks. This concept is generally attributed to Adam Smith. See also: comparative advantage, replacement cycle.

Fig. 1 Absolute advantage. The relationship between resource input and output.

absolute advantage

an advantage possessed by a country engaged in INTERNATIONAL TRADE when, using a given resource input, it is able to produce more output than other countries possessing the same resource input. This is illustrated in Fig. 1 with respect to two countries (A and B) and two goods (X and Y). Country A's resource input enables it to produce either 100X or 100Y; the same resource input in Country B enables it to produce either 180X or 120Y. It can be seen that Country B is absolutely more efficient than Country A since it can produce more of both goods. Superficially this suggests that there is no basis for trade between the two countries. It is COMPARATIVE ADVANTAGE, however, not absolute advantage, that determines whether international trade is beneficial or not, because even if Country B is more efficient at producing both goods it may pay Country B to specialize (see SPECIALIZATION) in producing good X at which it has the greater advantage.