Question

What is the difference between absolute advantage and comparative advantage?

Absolute advantage is the ability to produce a good or a service at a lower production cost than competitors. Comparative advantage is the ability to produce a good or service at a lower opportunity cost than competitors.
Absolute advantage is the ability to produce a good or a service at a lower opportunity cost than competitors. Comparative advantage is the ability to produce a good or service at a lower production cost than competitors.
Absolute advantage is the ability to sell a good or a service at a lower price than competitors. Comparative advantage is the ability to sell a good or service at a higher price than competitors.
Absolute advantage is the ability to sell a good or a service at a higher price than competitors. Comparative advantage is the ability to sell a good or service at a lower price than competitors.

Answer 1

The first option is correct.

- Absolute advantage: you can produce a good or service using fewer resources (or at lower production cost) than someone else.
- Comparative advantage: you can produce a good or service at a lower opportunity cost than someone else.

Brief example: Alice can make 8 apples or 4 bananas per hour; Bob can make 6 apples or 2 bananas per hour. Alice has an absolute advantage in both goods (8>6, 4>2). But Bob’s opportunity cost of 1 apple is 1/3 banana (2/6), while Alice’s is 1/2 banana (4/8); Bob has the comparative advantage in apples.