Absolute advantage refers to a situation where a company, region, or ta country can produce a greater quantity of products and services given the same inputs per period compared to a competing entity that produces similar goods or services (Costinot et al., 2015). Absolute advantage originates from the level of efficiency and technological advancement associated with the production of a particular commodity. For an entity to possess an absolute strength, it has to show exclusivity in producing extra outputs at the same cost with a competing body. Comparative advantage refers to an economic situation where a company, region, or country has an opportunity for producing commodities or services at a lower opportunity cost compared to competitors or partners (Chacholiades, 2017). In effect, the company or region with a comparative advantage usually has a chance for selling commodities at a price lower than that of competitors. The benefits occur through high-profit margins originating from differences in costs of operations and prices.
Big countries are likely to experience a significant portion in big countries, but this does not prevent engagement in trade with small states. Big countries find it possible to produce a high level of output given the same resources as small nations. However, they engage in business with small countries, and both nations experience the benefits (Hanson, Lind, & Muendler, 2015). Absolute advantage acts as a motivation to trade, and different opportunity costs in these countries make it possible for states to benefit from trade. For instance, if a blessed country engages in business with a nation that is less blessed and opportunity cost becomes the cost of producing one additional unit, then the less wealthy government may have less opportunity for creating other products. As a result, the blessed nation can obtain one or more unit of the same product from less developed countries.
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References
Chacholiades, M. (2017). The pure theory of international trade. Routledge.
Costinot, A., Donaldson, D., Vogel, J., & Werning, I. (2015). Comparative advantage and optimal trade policy. The Quarterly Journal of Economics, 130(2), 659-702.
Hanson, G. H., Lind, N., & Muendler, M. A. (2015). The dynamics of comparative advantage (No. w21753). National bureau of economic research.
