85. absolute advantage

The principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources. Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input. David Ricardo argued that a country does not need to have an absolute advantage in the production of any commodity for international trade between it and another country to be mutually beneficial. Since absolute advantage is determined by a simple comparison of (normally) labor productiveness, it is possible for a party to have no absolute advantage in anything; in that case, according to the theory of absolute advantage, no trade will occur with the other party. In reality trade does take place - Ricardo then isolated the idea of Comparative advantage - which refers to the ability to produce specific goods at a lower opportunity cost. ================================ Useful videos

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