Question

•Give an example of when you have an absolute but not a comparative advantage.

Answer 1

When a producer can be able to produce a product more in quantity than the competitor by using same amount of resources is called absolute advantage. The country which have less opportunity cost of production of product than its competitor is called competitive advantage.

A country X can produce 10 cars or 20 Bikes. Country Y can produce either 25 cars or 75 bikes

Here Country Y has an absolute advantage in production of cars and Country X has an absolute advantage in production of Bikes

Opportunity cost of Country X in Cars = 2 Bikes/ Car

Opportunity cost of country X in bikes = (1/2) Cars/ Bike

Similarly country Y in Cars = 3 Bikes / Car

In Bikes = (1/3) Cars / Bike

Country Y has comparative advantage in Bikes and Country X in Cars.