How do you calculate an absolute advantage?
To calculate absolute advantage, you must know the cost of the inputs involved in making something, as well as how much that region can make using those inputs. Then, compare the production capacity of one area to the production capacity of another, assuming both use the same inputs.
For example, Harry and Sally both like to knit and sell handmade scarves out of their home. They use the same raw materials and purchase them at the same price from the same store, meaning that the difference in production input is the amount of time it takes to make a scarf.
Harry can make five scarves in 20 hours, and Sally can make four scarves in 20 hours. In this scenario, Harry has an absolute advantage because he can make one more scarf than Sally using the same amount of time. Put another way; he makes one scarf every four hours, and Sally makes one every five hours. Sally is 80% as efficient as Harry when it comes to making scarves.
Does the US have an absolute advantage?
In the real world, it can be challenging to determine whether one country has an absolute advantage. The theory of absolute advantage assumes only two countries and two products are involved in trade, but real-life business involves many more parties and goods.
Some of the advantages that the United States has over other countries include a skilled workforce and many natural resources. This means that the U.S. likely has an absolute advantage when it comes to producing high-tech services and services like computers and software, as well as things that rely on large areas of farmland, such as corn.
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What is it called when a country is able to produce more than another country?
When a country can produce a particular good?
When a country can produce something that is cheaper or of higher quality than any other country?
When one country can out produce another country?