In international trade, it is not possible for a country to have a comparative advantage in the production of all goods. One country can, however, have an absolute advantage in producing all goods. In economics, the difference between a comparative advantage and an absolute advantage has to do with production costs, quality and efficiency. When a country has a comparative advantage in producing certain items, it means the nation can make the products at a lower cost than other countries. A country that has an absolute advantage with respect to specific goods is simply the best at producing those items. Just because a country produces certain goods better and more quickly than other countries does not mean the country can make them at a lower cost.

The law of comparative advantage states that free trade works even if one country ends up with an absolute advantage in producing all products or in all aspects of producing a good or service, because other countries would still have comparative advantages in the production of some goods or services. These countries would, therefore, be able to sell those goods or services at lower costs than the country with the absolute advantage.

In international trade, both parties benefit from commerce with other countries because each country has advantages in producing certain goods or services. Trade among nations makes the global marketplace more competitive, and the increased competition results in less expensive products for consumers. It is in the best interest of countries to promote industries in which they have the highest comparative advantage. (For related reading, see: What are specialization and comparative advantage in international trade?)

  1. What are some real life examples of absolute advantage?

    Learn about absolute advantage, comparative advantage and their impact on trade through a real-world example involving call ... Read Answer >>
  2. How does globalization impact comparative advantage?

    Learn how comparative advantage is becoming increasingly relevant due to globalization and how this has affected both advanced ... Read Answer >>
  3. How can a company or entity challenge the absolute advantage of another company?

    Understand what absolute advantage is, and learn how a company or entity can challenge the absolute advantage of another ... Read Answer >>
  4. How does comparative advantage influence the balance of payments?

    Learn how comparative advantage affects a country's balance of exports and imports, which in turn influences the overall ... Read Answer >>
  5. How do "factor endowments" impact a country's comparative advantage?

    Find out how factor endowments – namely labor, land and capital – affect a country's comparative advantage and how that advantage ... Read Answer >>
  6. What is comparative advantage?

    Comparative advantage is an economic law that demonstrates the ways in which protectionism (mercantilism, at the time it ... Read Answer >>
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