In economics, the principle of absolute advantage is the ability of a party (an individual, or firm, or country) to produce a good or service more efficiently than its competitors. The Scottish economist Adam Smith first described the principle of absolute advantage in the context of international trade in 1776, using labor as the only input. Since absolute advantage is determined by a simple comparison of labor productiveness, it is possible for a party to have no absolute advantage in anything. The concept of absolute advantage is generally attributed to the Scottish economist Adam Smith in his 1776 publication The Wealth of Nations, in which he countered mercantilist ideas. Smith argued that it was impossible for all nations to become rich simultaneously by following mercantilism because the export of one nation is another nation's import and instead stated that all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolute advantage. Smith also stated that the wealth of nations depends upon the goods and services available to their citizens, rather than their gold reserves. Because Smith only focused on comparing labor productivities to determine absolute advantage, he did not develop the concept of comparative advantage. While there are possible gains from trade with absolute advantage, the gains may not be mutually beneficial. Comparative advantage focuses on the range of possible mutually beneficial exchanges. According to Figure 1, the UK commits 80 hours of labor to produce one unit of cloth, which is fewer than Portugal's hours of work necessary to produce one unit of cloth. The UK is able to produce one unit of cloth with fewer hours of labor, therefore the UK has an absolute advantage in the production of cloth. On the other hand, Portugal commits 90 hours to produce one unit of wine, which is fewer than the UK's hours of work necessary to produce one unit of wine. Therefore, Portugal has an absolute advantage in the production of wine.

About this result
This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.
Related courses (9)
MGT-466: Negotiation techniques
This course is designed to give you a practical, hands-on opportunity to learn the basics of negotiating, self leadership and the impact of culture. Strategies and techniques are presented and practic
ENV-723: Models for applied environmental economics
Mainly based on the discussion of peer reviewed academic papers, the course introduces non economists to the main types of applied models used in environmental economic analysis: linear programming, p
HUM-125(a): Global issues: health A
Le cours présente l'enjeu mondial de la santé. Il aborde les défis posés par l'innovation biomédicale, les maladies infectieuses et neuropsychiatriques. L'approche interdisciplinaire intègre les SHS e
Show more
Related lectures (33)
PLL Discriminator Overview
Provides an overview of PLL and DLL discriminator principles, stability regions, and error sources.
Selective Laser Sintering and Melting
Explores Selective Laser Sintering and Melting processes, covering powder types, systems, applications, and technical data in polymer and metal industries.
Introduction to Composites: Materials, Properties, and Applications
Covers the basics of composite materials, their properties, and applications in different industries.
Show more
Related publications (109)

Noncollinear DFT plus U and Hubbard parameters with fully relativistic ultrasoft pseudopotentials

Nicola Marzari, Luca Binci

The magnetic, noncollinear parametrization of Dudarev's DFT + U method is generalized to fully relativistic ultrasoft pseudopotentials. We present the definition of the DFT + U total energy functional and the calculation of forces and stresses in the case ...
College Pk2023

Assessing the readiness of municipalities for digital process innovation

Mert Duygan

Pre-adoption phases of innovation are understudied in the innovation literature. This article addresses preadoption phases of innovation by running a prospective analysis. We assess the readiness of municipalities for the adoption of a digital tool that br ...
ELSEVIER SCI LTD2023

Continuous Simulation Data Stream: A dynamical timescale-dependent output scheme for simulations

Loïc Hausammann, Matthieu Schaller

Exa-scale simulations are on the horizon but almost no new design for the output has been proposed in recent years. In simulations using individual time steps, the traditional snapshots are over resolving particles/cells with large time steps and are under ...
ELSEVIER2022
Show more
Related units (1)
Related concepts (6)
Comparative advantage
In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Comparative advantage describes the economic reality of the work gains from trade for individuals, firms, or nations, which arise from differences in their factor endowments or technological progress.
The Wealth of Nations
An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith (1723-1790). First published in 1776, the book offers one of the world's first connected accounts of what builds nations' wealth, and has become a fundamental work in classical economics. Reflecting upon economics at the beginning of the Industrial Revolution, Smith addresses topics such as the division of labour, productivity, and free markets.
Mercantilism
Mercantilism is a nationalist economic policy that is designed to maximize the exports and minimize the imports for an economy. In other words, it seeks to maximize the accumulation of resources within the country and use those resources for one-sided trade. It promotes imperialism, colonialism, protectionism, currency manipulation, and tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a possible current account deficit or reach a current account surplus, and it includes measures aimed at accumulating monetary reserves by a positive balance of trade, especially of finished goods.
Show more

Graph Chatbot

Chat with Graph Search

Ask any question about EPFL courses, lectures, exercises, research, news, etc. or try the example questions below.

DISCLAIMER: The Graph Chatbot is not programmed to provide explicit or categorical answers to your questions. Rather, it transforms your questions into API requests that are distributed across the various IT services officially administered by EPFL. Its purpose is solely to collect and recommend relevant references to content that you can explore to help you answer your questions.