Comparative and Absolute Advantages - Comparison Essay Example
Comparative and Absolute Advantages
Comparative Advantage is when a country, a person, a group, a business enterprise or a firm can bring forth a good at a lesser opportunity cost than the competing firm.
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For example, there are two companies both selling clothes and cell phones. The first company is US Cell Phones and Clothing Corporation is of course locate in the bog country, America, where technology is very updated and materials for making clothes is much developed and is plentiful; the second company is the Indian Technology and Fashion Incorporated, in which we all know that India is not that updated in technology which is essential in making first class cell phones, but they don’t lack the knowledge on the modern fashion regarding clothes,; its design and its materials to be used for an excellent quality of clothing.
The Indian Technology and Fashion Incorporated should lay out a big sum of money for them to hire employees, employers and also to hire intelligent makers of their products whereas the US Cell Phones and Clothing Corporation use up only a less amount to come up wit the same produce.
The US Cell Phones and Clothing Corporation has a comparative advantage with Cell Phone production, it must think carefully about having only Cell phone while the Indian Technology and Fashion Incorporated should give up the Cell phone business and just concentrate on their product in which it is the lowest unfavorable condition, which is the Clothing.
Absolute Advantage is state when the country, a person, a group, a business enterprise or a firm has the quality of being able to bring forth a good or render a service at a lower cost than the price of the competing firm that also yields out the certain good. It is also the ability of a firm to produce a certain good only by utilizing lesser materials than their competing firm.
For Example, the Philippines can produce more products in formal suits than most countries in the Southeast Asia. It is because Philippines has efficient or lots of resources to make it than any other Southeast Asian Country. So, Philippines is said to have an absolute advantage in this area.
Economics. New Standard Encyclopedia. Pages 38-41. Volume 6.