The concept of absolute advantage in economía It was coined by Adam Smith to define the productivity of a person, a company or a country.
Of course, this absolute advantage will always be determined based on the amount of production factors used to achieve their goal, and the percentage of these factors used must always be as low as possible. Therefore, we can speak of absolute advantage when the least possible number of costs and resources is used to produce a good, product or service.
What is the absolute advantage?
In order for the theory of absolute advantage to work, the benefits will have to be obtained through comparative advantages, that is, through a commercial benefit. For example, a country can obtain the absolute advantage to the extent that it begins to market products abroad and these products as their sales increase, profits increase.
One of the characteristics of absolute advantage is that it can only take place when one of the market competitors has managed to manufacture its products, goods or services at a lower cost than the rest of its competitors. In this way, the logic indicates that a country will export only those products in which this advantage is guaranteed.
Absolute advantage and comparative advantage, are they the same?
In this same context, it is common to wonder what absolute advantage and comparative advantage are and how they interact. Thecomparative advantage It is understood through absolute advantage, that is, there is a tendency to specialize in those products, goods or services in which it is possible to be more efficient and effective. This is the maximum rule of international trade, since a country or a company will always try to access this market, but for this it will have to bet on the product whose costs are lower by comparing it with its competitor.
The absolute advantage and free trade
The absolute advantage is also related to free trade because for this condition to take place there cannot be any tariff policy as well as any other tax that may hinder the circulation of each product.
For experts, the absolute advantage is positive for economic growth to the extent that competitiveness between people, companies or countries can be favored.