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Absolute advantage - Higher Level Only

Syllabus: (You need to be able to)
  • Explain the theory of absolute advantage.
  • Explain, using a diagram, the gains from trade arising from a country’s absolute advantage in the production of a good.

Definition: An absolute advantage occurs when one person, company, or country is more efficient at producing the same good or service than another person, company or country.

 If Mark can cut four lawns in an hour and Susan can cut five lawns in an hour, then Susan has an 
absolute advantage in lawn cutting - Good old Susan

NB Alternative definition: Absolute advantage exists when a country can produce more of a product per resource unit than another country.

Learning Tip: Really understand this definition because it is so easy to confuse this with the definition of comparative advantage

Trade allows a country to specialise in the production of those products that it can produce most efficiently.

A country will benefit from international trade if it exports those goods it is more efficient at producing and imports (exchanges) those goods it is not so efficient at producing (see benefits of trade)

Letīs do Economics!

Study the diagram on the right. Can you say which country should specialise in the production and exchange               PPCs for two Countries
 of which good? Can you say why?