Question

You just overheard your friend say the following:

“Poor countries like Malawi have no absolute

advantages. They have poor soil, low investments in formal education, and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade.” How would you respond?

Short answer

I will respond in a knowledgeable manner.

Step-by-step solution

Step 1. Definition

The ability to produce a greater quantity of a good or service with the same number of inputs or to produce the same quantity of a good or service using a lesser quantity of inputs is referred to as absolute advantage.

Step 2. Explanation

Advantageous trade can happen only if opportunity costs differ and this gives a comparative advantage.

A beneficial trade depends mainly upon comparative advantage and it has no relation with absolute advantage. So Malavi doesn’t have to be in absolute advantage to have an advantageous trade, only comparative advantage is sufficient.