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 ?
They have gained a lot of praise for their high quality products and excellent service, what's the important, their prices have an absolute advantage.
In terms of demographics, Ko had an "absolute advantage" with voters under the age of 40, but a disadvantage with voters over the age of 55.
The dealer principal of the great-looking La Union branch is Absolute Advantage Inc.
A little later, David Ricardo, drawing on earlier analysis by James Mill, explained the logic of the Law of Comparative Advantage, demonstrating that even traders with "absolute advantage" in every type of production could still gain by obtaining certain products by trade rather than by their own production.
Historically, absolute advantage -- a country importing what it cannot produce itself, or can only produce at inordinate cost -- has always been the main motive for trade.
Maintaining a comparative and/or an absolute advantage in the global markets is far from being the sole reason for governments to initiate trade practices perceived by others as unfair and thus actionable under mutually agreed rules.
But an absolute advantage that favors one or another actor under the silly rubric of "competitiveness" is regularly assumed to be the same as comparative advantage for cooperation.
This is an absolute advantage for the citizens of Kyrgyzstan, because they have the same social opportunities and rights as the Russians, "the Head of the Ombudsman's Office said.
"Mercedes' dominance in the last three years has given the team an absolute advantage. And Lewis has driven extremely well, but in a car that's been considerably better than the opposition.
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.
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.