Absolute advantage is the ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time, or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs, than its competitors.
KEY TAKEAWAYS
- Absolute advantage is when a producer can provide a good or service in greater quantity for the same cost, or the same quantity at a lower cost, than its competitors.
- A concept developed by Adam Smith, absolute advantage can be the basis for large gains from trade between producers of different goods with different absolute advantages.
- By specialization, division of labor, and trade, producers with different absolute advantages can always gain more than producing and consuming in isolation.
- Absolute advantage can be contrasted with comparative advantage, which is the ability to produce goods and services at a lower opportunity cost.
