Absolute advantage

Question

Absolute advantage

Quizplus · Accepted Answer

Absolute advantage means that a country can produce more of two goods than another country can. It is a concept introduced by Adam Smith that indicates the ability of a country to produce a particular good using fewer resources than another country. This concept assumes that countries are not trading with each other and are operating in autarky. It is different from comparative advantage which suggests that countries should specialize and trade with each other based on their relative efficiencies. Option A is incorrect because absolute advantage and comparative advantage are different concepts. Option B is incorrect because absolute advantage assumes countries are operating in autarky but does not imply it. Option C is incorrect because absolute advantage does not say anything about the opportunity cost of producing both goods. Option E is incorrect because absolute advantage suggests that a country can produce more of both goods.

Absolute Advantage