Absolute advantage and Comparative Advantage in Trade
Absolute advantage refers to the process where a country has the ability to produce more or better goods and services in comparison to everyone else. It refers to the capacity of producing goods and services at a low opportunity cost, and not for the purpose of achieving greater volume ( Organisation for Economic Co-operation and Development, 2011) . The principle of comparative advantage in trade refers to the perception that a country should focus on producing goods and services which it can produce at least cost and in high quality compared with those of other countries.
Comparison of the two views on Trade
The key variance between absolute advantage and comparative advantages is that in the former, a country is able to acquire more competent resources and facilities for the production of a particular product while in the latter; a country is able to produce a product at least opportunity cost. The theory of comparative advantage is based on the view that conducting trade results into a situation where economies benefit from a reduction in the costs and the production of high-quality goods and services ( Schumacher, 2012) . In absolute advantage, a country has the capability to incur costs required to produce most products and does not need to determine the product that can be produced at least cost to
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How the Concept of Opportunity Cost Factor into Comparative Advantage
The idea of opportunity cost has been used in determining comparative advantage by dividing the value of the product which is forgone with that which is produced. The higher the value of the quotient, the higher the comparative advantage. For example, if country A has the ability to produce 40 pieces of bread and 20 cheese by using the same labor and resources while country B has the ability to produce 30 pieces of bread and 25 cheese using the same materials. The opportunity cost of producing bread in company A is (20/40) which equals 0.5 and the opportunity cost of producing bread in the country (30/25) is 1.2. Therefore, country B has a higher comparative advantage in producing bread ( Schumacher, 2012) .
Why Comparative Advantage has become the Fundamental and accepted Theory of trade
Comparative advantage has become a major theory in international trade because presently, countries strive to increase the level of production of goods at least cost in order to achieve competitiveness in international trade. If a country is able to implement the least labor and reduce the number of goods produced, it is perceived to have a higher comparative advantage. There is also the tendency of countries to concentrate on the manufacture of particular types of merchandises and services while not focusing on the production of other types of goods and services in order to promote trade with its partners ( Schumacher, 2012) . This is another concept of production that is practiced in accordance with the concept of comparative advantage. During the search for international efficiency, nations always try to determine the goods which they have the ability to produce in a proficient manner prior to participating in the international trade environment. This is contrary to the strategy of simply seeking a reduction in costs of deals. There is increased attempt of manufacturers to weigh the benefits and limitations of goods they are likely to produce to understand whether they are efficient at producing them ( Schumacher, 2012) .
References
Organization for Economic Co-operation and Development. (2011). Globalization , comparative advantage and the changing dynamics of trade . Paris: OECD.
Schumacher, R. (2012). Free trade and absolute and comparative advantage: A critical comparison of two major theories of international trade . Potsdam: Universitätsverl.
