Can anyone explain the difference between compartative advantage and absolute advantage in way that is easy to learn/understand?
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It's all about the opportunity cost, or tradeoff. A person, country, or business with an absolute advantage can produce more of a good than any other competitor, but they do so while ignoring costs. Let's say Company A and Company B both produce widgets and gadgets.
They each have the capability to produce 1000 widgets, or 500 gadgets. But their resource costs are different. WIDGET PRODUCTION -- Company A can build 1000 widgets using 50 workers -- Company B can build 1000 widgets using 100 workers (Company B is at an absolute DISadvantage) GADGET PRODUCTION -- Company A can build 500 gadgets using 75 workers -- Company B can build 500 gadgets using 110 workers.(Company B is at an absolute DISadvantage, again) Company A has an absolute advantage in both products; they require fewer resources (workers in this case) than B to produce each product.
Things aren't looking so good for B, right? Company B is getting killed in widgets -- it requires twice as many workers to build one. But then let's look at gadgets.
If A produces only gadgets, they need 50% more workers to do so (50 --> 75). But if B produces only gadgets, they require only 10% more workers (100 --> 110). When Company A puts those 25 extra workers on the gadget assembly line, they're giving up 500 widgets worth of production value (since each worker can make 20 widgets (1000/50=20)).
But when Company B puts 10 extra workers on the gadget assembly line, they're giving up only 100 widgets worth of value (since each worker can only make 10 widgets (1000/100=10)). Company B gives up less when they commit to gadgets. Therefor, they have a comparative advantage.
In economics, the principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources. 123456 Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input. Since absolute advantage is determined by a simple comparison of labor productivities, it is possible for a party to have no absolute advantage in anything;7 in that case, according to the theory of absolute advantage, no trade will occur with the other party.
8 It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost. The main concept of absolute advantage is generally attributed to Adam Smith for his 1776 publication An Inquiry into the Nature and Causes of the Wealth of Nations in which he countered mercantilist ideas. 79 Smith argued that it was impossible for all nations to become rich simultaneously by following mercantilism because the export of one nation is another nation’s import and instead stated that all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolute advantage.
7 Smith also stated that the wealth of nations depends upon the goods and services available to their citizens, rather than their gold reserves. 10 While there are possible gains from trade with absolute advantage, the gains may not be mutually beneficial. Comparative advantage focuses on the range of possible mutually beneficial exchanges.
Party A can produce 5 widgets per hour with 3 employees. Party B can produce 10 widgets per hour with 3 employees. Assuming that the employees of both parties are paid equally, Party B has an absolute advantage over Party A in producing widgets per hour.
This is because Party B can produce twice as many widgets as Party A can with the same number of employees. You and your friends decided to help with fundraising for a local charity group by printing t-shirts and making birdhouses.
I cant really gove you an answer,but what I can give you is a way to a solution, that is you have to find the anglde that you relate to or peaks your interest. A good paper is one that people get drawn into because it reaches them ln some way.As for me WW11 to me, I think of the holocaust and the effect it had on the survivors, their families and those who stood by and did nothing until it was too late.
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