Absolute Advantage

Absolute advantage refers to the ability of one producer of goods or services to be more efficient than another in production. To take a very simple example, suppose two children operate lemonade stands. Lucy has good manual dexterity, while Charlie Brown is clumsy and keeps dropping his lemons. Lucy can produce the same amount of lemonade as Charlie Brown while expending less effort. Lucy has an absolute advantage over Charlie Brown in lemonade production.

Although “producer” here may mean an individual or a single company, the concept is most often applied to international trade. If Venezuela, for example, can produce 1000 microchips with 10 units of labor, but in Canada 50 units of labor are required to produce the same 1000 microchips, then Venezuela is said to have an absolute advantage over Canada in the production of microchips. (Absolute advantage is usually discussed in relationship to comparative advantage.)