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Absolute Advantage

  Absolute advantage, in economics, is a concept of trade in which one country can produce a quantity of a product more efficiently (that is, with fewer resources of labour, land, and/or capital) than another country.

For example, in 1981, Japan produced a ton of steel with only 9.4 man-hours at a cost of only $502, compared with 16.5 man-hours and $622 in the UK. However, this statistic does not carry the implication that Japan should specialize in steel and the UK should not, because Japan might be even better relative to the UK at other things. The real guide to specialization and to maximizing the gains from trade is comparative advantage. Not only that, but neither absolute nor comparative advantage are necessarily static for all time: once, UK steel producers were more efficient than the Japanese. TF

Further reading Alfred D. Chandler, The Dynamics of Industrial Capitalism; , Michael E. Porter, The Competitive Advantage of Nations.



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