Absolute Advantage

Absolute advantage can be achieved by producing a good or service at a lower absolute cost per unit with fewer inputs, or by a more efficient process.

Absolute advantage is the ability of an individual, firm, area, or country to produce more of an item or service per unit of time with the same amount of inputs, or to produce the same amount of a good or service per unit of time with less inputs, than its competitors.

When a manufacturer can supply a good or service in more quantity for the same cost, or the same amount at a lower cost, than its competitors, it has an absolute advantage.

The concept of absolute advantage was developed by 18th-century economist Adam Smith in his book The Wealth of Nations to show how countries can gain from trade by specializing in producing and exporting the goods that they can produce more efficiently than other countries.

Producers with distinct absolute advantages can always benefit more by specialization, division of labor, and commerce than producing and consuming in isolation.

Comparative advantage, or the ability to create goods and services at a reduced opportunity cost, contrasts with absolute advantage.

Countries with an absolute advantage can decide to specialize in producing and selling a specific good or service and use the generated funds to purchase goods and services from other countries.