- Created by: Jeon32666
- Created on: 07-02-19 13:43
PRINCIPLE OF ABSOLUTE ADVANTAGE :
A country is said to have absolute advantage in the production of a good when it is more efficient in producing that good compared to the other country.
While explaining the concept of absolute advantage, we assume that:
- There are no trade barriers
- There is no transportation cost
- There is perfect mobility of resources between two countries
- The products that both countries produce are of similar quality
If a country specialises in producing a good on which it has an absolute advantage, then the total output will rise and the product not produced will be imported from the other country.