The topic under discussion deals with Absolute and Comparative Advantage LO2). Explain the differences with examples.

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Examples:

 Absolute Advantage and Comparative Advantage are two concepts that address the production of goods and services offered by businesses and countries in order to understand and explain their motivations within the scope of economics and trade. The first is based on the principle that an entity has an advantage over its competitors regarding the quality and efficiency in the delivery of its product/service, consequently, producing more at a lower cost. The second, on the other hand, considers the lowest opportunity cost, that is, the best option compared to another choice that could have been made. If the opportunity cost of two competitors is different, both can benefit (Indeed Editorial Team, 2024). 

         In absolute advantage, geography may be the key, where each country can benefit from the resources made available by nature and the ease of finding them and being able to focus on that product. According to Greenlaw, Shapiro & MacDonald (2022) “Guatemala and Colombia have climates especially suited for growing coffee. Chile and Zambia have some of the world’s richest copper mines. As some have argued, geography is destiny.” In competitive advantage, trade can be the key, considering the production levels of each country. Taking a negotiation between Saudi Arabia and the United States as an example, Saudi Arabia previously produced and consumed 10 bushels of corn and 60 barrels of oil, while the United States, on the other hand, produced and consumed 60 bushels of corn and 20 barrels of oil. Currently, if the United States were able to negotiate a larger quantity of oil and a larger quantity of corn, it would profit from this trade (Greenlaw, et al., 2022)

         Those concepts are not only related to companies and countries, but also daily situations that can be analyzed using the opportunity cost as a foundation. A basic example of comparative advantage that I have created in a common situation would be two women who work in a beauty salon. The first lady can provide nail service, as well as hair and hairstyles service, while the other only provides nail service. We can say that she has an absolute advantage over the other lady. The salon is overwhelmed with clients on a saturday and the first lady has the advantage of knowing the 2 services, in addition to being faster at the common service with the second lady. However, even though she is fast, with such high demand and a short period of time, she would not have enough time to take care of so many clients by herself and provide 2 types of service at the same time, and would end the day overwhelmed. In the end, she sacrifices the service of nails (opportunity cost) and focuses on doing hairstyles, while the other lady focuses on nails, speeding up the process and being able to serve more than one client or one client finishing faster, since nails and hair are being done at the same time by 2 people. Even though the first lady is more efficient at doing nails, in this situation, she benefits more by allocating the tasks.

        

References:

Indeed Editorial Team. 2024. 6 Comparative Advantage Examples. Indeed. https://www.indeed.com/career-advice/career-development/comparative-advantage-example

S. Greenlaw, D. Shapiro & D. MacDonald (Dec 14, 2022). Principles of Economics 3e. OpenStax. https://openstax.org/books/principles-economics-3e/pages/33-1-absolute-and-comparative-advantage