What is the difference between absolute and comparative advantage?

A country is said to have absolute advantage (in the production of a good) over another country if it is able to produce a greater quantity of a good (using the same amount of resources) than the other country. For example, Germany is said to have absolute advantage over Turkey in the production of cars, as Germany would be able to produce more cars than Turkey if they were given the same quantity of resources for production.
A country is said to have comparative advantage (in the production of a good) over another country if it is able to produce this good at a lower opportunity cost than the other country. Hence, in order for this to make sense, we need to compare the PPFs (production possibility frontier) of the two countries (i.e. we consider the economies ability to produce two goods respectively). We can calculate opportunity cost in the following way: the opportunity cost producing a good (let's call this good X) with respect to another good (Y) = Y/X where X and Y are outputs of the goods X and Y respectively. Using this formula, we can see which country has comparative advantage when we are given their PPFs. Comparative advantage is a very useful notion, as it leads onto the Theory of Comparative Advantage - this tells us when specialisation is beneficial for an economy, which gives us a very useful evaluation point for protectionism!

RB
Answered by Rohan B. Economics tutor

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