Absolute Advantage
The ability to produce the same quantity of a good or service using fewer resources per unit of time.
The theory of absolute advantage by Adam Smith indicates a country is more efficient in production if it uses fewer resources to produce a good.
Assume there are two countries, $A$ and $B$, who produce either only beef or only leather.
The table below shows how much each country produces per one worker in one day if the worker produced either only beef or only leather.
| Country | Kilos of beef | Metres of leather |
|---|---|---|
| A | 8 | 2 |
| B | 5 | 4 |
Country $A$ has an absolute advantage in producing beef because with the same number of resources (one worker), it produces more beef.
However, country $B$ has an absolute advantage in producing leather because with the same number of resources, it produces more leather.
The example above showcases the scenario where reciprocal absolute advantage exists.
We can use the information in the example above to construct the PPCs of each country.
The figure above shows the PPCs for each country which we can construct by noticing the quantity produced per worker (assuming there is only one worker in each country).
We can repeat the process to get the PPC of country $B$.
As observed in the diagram:
There can be cases where a countries PPC sits entirely above on both axis indicating absolute advantage in both goods.
Hence, if a country specialises in the good they have absolute advantage in, then:
Hence absolute advantage encourages production of goods to those who are more efficient, which leads to more production for the same resources worldwide (efficient production throughout the world).
Further:
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