Comparative And Absolute Advantage

A person who has the ability to produce something at a lower opportunity cost than others producers has a comparative advantage. Therefore, to find people's comparative advantages should compare their opportunity costs. Moreover, the individual abilities and characteristic of other resources affected the rising of opportunity costs. (ECONOMIC 7th ed., 2005, Michael Parkin, pg 40)

However, a person has an absolute advantage means being able to produce something more than other producers by using the same amount of resources as he is the best in doing something. Besides that, a person can produce something using fewer resources than other producers has an absolute advantage too. The differences of productivity are influencing the rising of absolute advantage. On the other hand, a person who has more capital, more skilled or a better technology has an absolute advantage. (ECONOMIC 7th ed., 2005, Michael Parkin, pg 43)

David and Ivan each are given the same resources to produce candies and chocolates. David can produce 60 candies or 30 chocolates per day with the resources given. However, Ivan can produce 30 candies or 20 chocolates per day by using the same amount of resources. Thus, David is said to be having an absolute advantage as he can produce more than Ivan with each given the same amount of resources. This situation may caused by David has better skilled workforces or high technology machines to produce more products.

Furthermore, as David can even produce 60 candies or 30 chocolates by using all the resources. David can decrease his production of 2 candies to produce each chocolate. Therefore, David has an opportunity cost of 2 candies to produce each chocolate. Similarly, Ivan has the same amount of resources with David to produce either 30 candies or 20 chocolates. Ivan should decrease his production of 1.5 candies to produce each chocolate.

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