What is the difference between absolute advantage and comparative advantage? Which one is most important for determining what a country will specialize in producing?
What will be an ideal response?
Absolute advantage relates to the amount of labor, capital and other inputs required to produce output. A country has a comparative advantage in a good or service if the country can produce that good at a lower opportunity cost than can other nations. That is, if a country has a larger productivity advantage in producing a particular good or service (or a smaller disadvantage), it is said to have a comparative advantage relative to other nations. The comparative advantage, rather than absolute advantage, determines what a country will specialize in. It is possible for a country to have an absolute advantage in a good or service but not a comparative advantage in that good or service.
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