Absolute advantage is the relative efficiency of an individual or group of individuals in an economic activity, compared to another individual or group. Adam Smith proposed, in the 18th century, that free trade would be beneficial if countries specialized in activities in which they possessed an absolute advantage. While this may be true, it was superseded by the theory of comparative advantage of David Ricardo, which showed that even if an individual or group (a country, say) possesses an absolute advantage in all activities, there could still be gains from trade. Research Absolute advantage
In economics, the comparative advantage is the relative efficiency in a particular economic activity of an individual or group of individuals over another economic activity, compared to another individual or group. One of the fundamental propositions of economics is that if individuals or groups specialize in activities in which their comparative advantage lies, then there are gains from trade. This proposition, first outlined by David Ricardo, is one of the main arguments for free trade and against such restrictions as tariffs and quotas. It still holds even if one group holds an absolute advantage in all economic activities over another group. For example, even if Japan is better at producing both cars and ships than Britain, there will still be gains from trade if Britain specializes in the production of the goods in which it holds a comparative advantage. Research Comparative Advantage
The Probert Encyclopaedia was designed, edited and programed by
Matt and Leela Probert
Abbreviations
Research Absolute advantage
