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What is the difference between absolute advantage and comparative advantage?

A. Absolute advantage is the ability to produce a good or a service at a lower production cost than competitors. Comparative advantage is the ability to produce a good or service at a lower opportunity cost than competitors.

B. Absolute advantage is the ability to produce a good or a service at a lower opportunity cost than competitors. Comparative advantage is the ability to produce a good or service at a lower production cost than competitors.

C. Absolute advantage is the ability to sell a good or a service at a lower price than competitors. Comparative advantage is the ability to sell a good or service at a higher price than competitors.

D. Absolute advantage is the ability to sell a good or a service at a higher price than competitors. Comparative advantage is the ability to sell a good or service at a lower price than competitors.



Answer :

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Final answer:

Absolute advantage is about lower production costs, while comparative advantage is related to lower opportunity costs. The example of TVs and smartphones illustrates the difference.


Explanation:

Absolute Advantage vs. Comparative Advantage

Absolute advantage is the ability to produce a good at a lower production cost, while comparative advantage is the ability to produce a good at a lower opportunity cost.

For example, if Country A can produce both TVs and smartphones more efficiently than Country B, Country A has an absolute advantage in both. However, if the opportunity cost of producing TVs instead of smartphones is lower for Country A compared to Country B, Country A has a comparative advantage in TVs.


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