Absolute Advantage
The ability of a country or producer to produce a good or service using fewer resources than any competitor.
What is Absolute Advantage?
Absolute advantage exists when a country, firm, or individual can produce a greater quantity of a good or service using the same resources, or the same quantity using fewer resources, than any other producer. The concept was introduced by Adam Smith in 'The Wealth of Nations' (1776) as a justification for international trade: if each country specializes in goods where it has an absolute advantage and trades for the rest, global output increases. However, absolute advantage is a less powerful explanation for trade than comparative advantage, introduced by David Ricardo. Even a country with no absolute advantage in any good can still benefit from trade by specializing in the product where its relative disadvantage is smallest. In practice, absolute advantages often stem from natural resources, geography, technology, or labor costs.
Example
Saudi Arabia can extract oil with significantly fewer workers and equipment per barrel than Switzerland because of its vast, shallow reserves. Saudi Arabia has an absolute advantage in oil production. Meanwhile, Switzerland has an absolute advantage in precision watchmaking due to centuries of accumulated craftsmanship and engineering expertise. Both countries benefit by trading oil for watches rather than attempting to produce both domestically.