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Absolute Advantage

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The absolute advantage is the ability of a person, company or country to produce a good, having to use less production factors than another.

In other words, the absolute advantage tells us that one countries better than others in the production of a good or service. It offers higher quality at a lower cost. By having better resources such as technology, time, capital or a better human factor, something can be produced more efficiently. This means that this measurement can be used when establishing comparisons between different producers.

In this way, we can compare nations, companies or individuals based on their spending of resources when producing a good. The one that uses less resources to carry out this action, we will say that it has absolute advantage.

The absolute advantage of Adam Smith

This economic concept is one of the first bases in the study of international economics and commerce, since Adam Smith announced his theory. For Smith, countries tend to specialize in the production of those goods in which they have absolute advantage. This happens because of the lower expenditure of resources on production mentioned above.

According to the theory of absolute advantage, when countries specialize in goods in which they have absolute advantage, they export those goods and with the proceeds of this sale they buy other goods produced by other countries. In this way he concluded the efficiency of international trade.

However, the idea of ​​absolute advantage as an engine of international trade proved to be too simplistic for reality. Since there were cases in which according to the given definition, there could be no trade.

In this way, it came through the study that international trade doesn't strictly respond to the theory of absolute advantage, but to that of comparative advantage.


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