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 ?
Adam Smith (1776) argued that the principle of absolute advantage determines patterns of trade.
The notion behind absolute advantage is pretty simple, as one nation sells something to others that they do not have; the countries that have oil sell to those that don't, for example.
The changes in the use of farmlands will eventually zero in on the absolute advantage based on the present market demands and competitive advantage of the location, Provido said.
Another theory presented in 1776 by Adam Smith (Morgan, Katsikeas 1997) states that countries specialize in the production of goods they have absolute advantage in.
As ITIF wrote in "False Promises: The Yawning Gap Between China's WTO Commitments and Practices," China's aggressive innovation mercantilism has, if anything, grown stronger in recent years, as it has sought absolute advantage across a wide range of advanced technology industries.
Global Banking News-December 29, 2015--NFP takes over Absolute Advantage Insurance Services
NFP ACQUIRES ARIZONA, US P/C AGENCY ABSOLUTE ADVANTAGE
M2 EQUITYBITES-December 29, 2015-NFP Acquires Arizona, US P/C Agency Absolute Advantage
His main arguments include the fact that Torrens did not state the key assumption that factors of production are relatively immobile between countries when compared to goods, he did not spell out a comparison of the real costs of production of manufacturing and com in England and Poland and, most of all, he was a strict defender of the principle of absolute advantage.
Hand-woven carpet is an absolute advantage (for Iran) and this is the only good in the world led by Iran," he pointed out.
On military might, the Chinese military is about 10 times larger than Taiwan's armed forces and has absolute advantage over Taiwan's military in terms of the number of ballistic missiles and submarines, it said.
Iqbal Tabish, Secretary General, SAARC CCI said that the complete phasing out of the negative list and removal of non-tariff barriers (NTBs) by India will provide level play filed for both countries, however, based on comparative and absolute advantage Indian exporters will be greatly benefitted.