Absolute Advantage Absolute Vs. Comparative Term Paper

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"This is because any actor's comparative advantage depends only upon the relationship between that single actor's own levels of productivity for two goods under consideration, while (www.auburn.edu).

An example of the distinction between comparative and absolute advantage might be that Microsoft may have so much capital and available resources that it could produce, say, pizza at an absolute advantage, compared with the local Italian restaurant. But to do so, Microsoft would have to give up some of its resources better spent in the production of a new Windows operating system, from which it could make much more money. Giuseppe, however, down the street, has a comparative advantage making his living producing pizzas at the business he inherited from his father, as he has few start-up costs, and because he can employ all of his family at the business at no cost. Economically, this single proprietor has the least to lose using his particular business space for that particular product, in comparison with Microsoft.

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Giuseppe would have to give up much more to turn his pizza business into a computer start-up company.

On a macro scale, comparative advantage is illustrated in how certain large nations, such as the United States, do not specialize in producing every possible good and service imaginable, because its resources can be better spent producing certain types of goods and services, and importing others from abroad. United States farmers might have, if they desired, an absolute advantage over farmers in Scotland in producing wool sweaters, but they does not deploy its resources to do so because they can make more money doing other types of farming, while farmers on the spare Scottish land may find that wool production gives them a better comparative advantage than producing other types of products.

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