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Absolute Advantage

Definition

Absolute advantage refers to the ability of a country, individual, or firm to produce a good or service more efficiently than another country, individual, or firm. It is based on comparing the productivity levels and resource allocation between two entities.

Analogy

Imagine you and your friend are both skilled in baking cookies. However, you can bake 20 cookies in an hour while your friend can only bake 10 cookies in the same time. In this scenario, you have an absolute advantage in cookie baking because you can produce more cookies with the same amount of time and resources.

Related terms

Comparative Advantage: Comparative advantage is when one entity has a lower opportunity cost in producing a particular good or service compared to another entity.

Trade: Trade involves the exchange of goods and services between countries or individuals to benefit from their comparative advantages.

Efficiency: Efficiency refers to using resources effectively to maximize output and minimize waste.