absolute advantage

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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.
Absolute advantageclick for a larger image
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.
References in periodicals archive ?
Since they spend more on subsidised products and services, their absolute advantages are far more than those who deserve lower rates.
That way it would not be obvious which country has absolute advantages in which good, yet the author's conclusions about mutual benefits from trade would remain valid.
Economy being open to the foreign, foreign trade and absolute advantages
Such results were achieved despite intense competition being faced by PIA from mush-rooming low cost carriers and especially Middle East airlines which have absolute advantages pertains to patronage of their Governments and fuel costs.
The Minister claimed rich countries imposed global standards on free trade when they enjoyed absolute advantages but then placed restrictions when their own interests were threatened.
Among middle-grade watches, Swiss, Japanese and Taiwanese watches hold absolute advantages of competition.
Speaking at a business conference, he said that developed countries had been arguing for global standards on free trade when they enjoyed absolute advantages but were placing restrictions when trade threatened their interests.