Question

  Explain how absolute advantage differs from comparative advantage.            (4 marks)

Answer 1

The difference between absolute advantage and comparative advantage is that while the former refers to the ability to produce a good using fewer inputs than another producer, the latter refers to the ability to produce a good at a lower opportunity cost than their producer.

In other words, the producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.

Similarly, the producer who gives up less of other goods to produce good X has the smaller opportunity cost of producing good X and is said to have a comparative advantage in producing it.

Absolute advantage is input-based while comparative advantage is opportunity cost-based.