Disadvantages Of Absolute Advantage

ASTRI CRISTIN

016201400023

DIPLO 4

Advantage absolute (Adam Smith)

Absolute advantage is the ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that same good or service. In other word, we can say that absolute advantage is when you can produce a goods or product more efficiently at the same time. Because every country has different advantage, it refers to absolute advantage and can lead to base of international trade. If every country exports what they the best at, then every country may be able to produce more than other country. Because they having a lot of resources than other country to produce.

The example

States Rice (kg) Tea

On other hand, Indonesia can only produce 70, 5 M kg of rice and 148,100 ton of tea per year. From this example we can see that, China has absolute advantage in the production of both products (rice and tea). It means that China has absolute advantage because they can produce the products (rice and tea) at same time than Indonesia. From the example of absolute advantage, we can conclude that the country must find out what they can produce more efficiently and specialize it then trading it with other country who also producing what they are best at.

Comparative Advantage (David Ricardo)

Comparative advantage is an economic law referring to the ability of any given economic actor to produce goods and services at a lower opportunity cost than other economic actors.

We can say that when a person or state has lower opportunity cost in the production of goods, that is means they have comparative advantage in the producing of good. Everyone or every state can produce the good at lower opportunity cost than others. That’s why they should specialize in the good that have the lower opportunity cost.

The example

States Rice (kg) Rubber

Whoever can the lower opportunity cost to other can trade with them and can gains benefits by trading. States trade with other states, when they do not have the resources, capacity to satisfy their own needs and wants, if the states can developing and trading efficiently, states can produce surplus and trade the resources they need. For the example we can see from The Transatlantic Trade and Investment Partnership would remove current barriers to trade between the United States and the European Union. It would be the largest agreement so far, beating even NAFTA. United States has bilateral with Australia (January 1, 2005) this agreement generated $26.7 billion in 2009, increasing trade 23% since its inception. U.S. goods exports increased 33%, while imports rose