Question

What is absolute advantage? What is comparative advantage?

Short answer

Ability to produce at lower absolute cost; Ability to produce at lower opportunity cost

Step-by-step solution

Step 1. Background

Opportunity cost refers to the cost of giving up the second-best alternative. In making economic decisions, certain economic cost is involved because of limited resources and alternative uses.

Step 2. Explanation 

Absolute advantage can be defined as the ability to produce a product at a lower cost or to produce more units at the same cost. For instance, if person A takes 8 hours to make a piece of cloth and person B takes 9.5 to produce the same cloth, then person A is said to have an absolute advantage.

Comparative advantage can be defined as the ability to produce a product at a lower opportunity cost than others. For instance, to do farming person A has to give up another activity that could have earned him $100. Person B has to give up a job that could have earned him $50. Then person B is said to have a comparative advantage in farming.