ABSOLUTE ADVANTAGE : This is when a country is able to produce more than other countries despite being given the same resource input.

COMPARATIVE ADVANTAGE: This is when a country is able to prouduce at a low cost compared to other countries.

 

Overall, there is not anything to actually to learn about Absolute & Comparative Advantage.              

 

There are no complicated graphs involved, you just need to know it so you can include it when tackling for example, a globalisation question. For starters; It will give you something decent to define at the start of the essay.      

                         It will also make you look like you know your stuff so you can pick up marks. 

 

There's nothing to explain about Absolute and Comparative advantage.

 

It can occur during Globalisation.  There a few things that it can do that i'll talk about below.

 

Firstly: It can be a disadvantage because firms will essentially go and set up abroad.  This is because of the comparative advantage that the country has in producing a good. 

 

For example: It may be cheap to produce T-Shirts in Africa rather than England, which means they hold a comparative advantage.

So firms will go to Africa and set up there due to this.  This may be good, because production costs will be alot cheaper. It may be due to the absence of minimum wage, in which case it means that the firms can pay workers alot less to make the same products.

This may also be due to the lack of Pollution Permits needed in developing countries which means that firms can pollute without having to pay a fee.

This may be a bad move for the UK economy however.  This is be  ibuting towards the decrease in unemployment.

 

If a country holds absolute advantage to a product it could also help the UK as well itself.

For example:

If Africa holds an absolute advantage in Cocoa Beans it means that they have the ability to produce most at the best quality and price in comparison to other countries. Therefore they hold an ABSOLUTE advantage over all other countries.

 

Now say, the UK cannot produce Cocoa Beans due to the weather conditions, but they can produce machinery.

The UK could become 'Trade Partners' with Africa and strike a deal with them.  This would mean that the UK and Africa would come to a deal where instead of paying for the goods in money they exchange a certain amount of the good that they hold an advantage in. They could specifically lower their trade barriers for their 'Trade Partner' too, which would help decrease the trading costs.

 

For example, they decide to trade 10 Tonnes of Cocoa Beans for 80 big industrial machines.

 

The would help both countries, because they would lower trade barriers for each other, would be able to specialise in a certain product, exploit economies of scale, and improve their economy.

In the Long-Run, Africa would be able to increase their productive potential and move the LRAS/PPF outwards due to the rise in investment. [CHAIN OF ANALYSIS] 

 

Due to this it would help developing countries to improve their economic conditions and grow their economy, as well as improve living standards via the rise in employment.  [CHAIN OF ANALYSIS]

 

Once again however, there is the disadvantage that it would take ALOT of cocoa beans to pay for the machines due to them being alot more expensive.  Perhaps this is a waste of Africa's time and money?  [EVALUATION]

 

It is also worth considering the fact that, if a certain country or countries are relied on to specialise in a product and produce it depending on the advantage they hold, it could result in a whole cost for the countries that buy from them.  For example: If their is a shock to the economy, for example a Tsunami, it may mean that the Cocoa gets destroyed for the year, maybe even longer.  This would mean that the countries that usually buy the good/service would have to go without or with very little.  If the country is a supplier of a raw material, it would be a HUGE disadvantage as production costs in other countries would rise along with Cost-Push Inflation.

 

This is all you basically need to know.  Trade is covered more in depth on the Globalisation page.