Definition of Absolute advantage:
In the theory of international trade, a country or firm has an absolute advantage if it can produce a product (good or service) more efficiently (cheaply) than others. First suggested by the UK economist Adam Smith (1723-90) as an extension of his division of labor doctrine. See also absolute cost advantage and competitive advantage.
The concept of absolute advantage was developed by Adam Smith in his book Wealth of Nations to show how countries can gain from trade by specializing in producing and exporting the goods that they can produce more efficiently than other countries. Countries with an absolute advantage can decide to specialize in producing and selling a specific good or service and use the funds that good or service generates to purchase goods and services from other countries.
Absolute advantage is the ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time, or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs, than another entity that produces the same good or service. An entity with an absolute advantage can produce a product or service at a lower absolute cost per unit using a smaller number of inputs or a more efficient process than another entity producing the same good or service.
How to use Absolute advantage in a sentence?
- Fortunately there was little competition at the time due to our processes that were unmatched by our rivals so we enjoyed an absolute advantage .
- Absolute advantage is related to comparative advantage, which can open up even more widespread opportunities for the division of labor and gains from trade.
- Absolute advantage can be the basis for large gains from trade between producers of different goods with different absolute advantages.
- By specialization, division of labor, and trade, producers with different absolute advantages can always gain over producing in isolation.
- Absolute advantage is when a producer can produce a good or service in greater quantity for the same cost, or the same quantity at lower cost, than other producers.
- The small country was proud to have found a way to produce cotton more efficiently and cheaply than its neighbors, as it then had an absolute advantage in the regions textile business.
- When it came to outsourcing tech support to overseas call centers, it appeared initially that India had the absolute advantage -- until customer backlash became impossible for American companies to ignore.
Meaning of Absolute advantage & Absolute advantage Definition