What is the difference between absolute advantage and comparative advantage?

The distinction between absolute advantage and comparative advantage is central to understanding how and why countries engage in trade. Absolute advantage refers to the ability of a party to produce more of a good or service with the same amount of resources than another party. In contrast, comparative advantage highlights the concept of opportunity cost and explains that a party has a comparative advantage when it can produce a good at a lower opportunity cost compared to others, even if it does not have an absolute advantage in producing that good.

This fundamental difference illustrates why nations or individuals may benefit from trade by specializing in the production of goods for which they have a comparative advantage, allowing for more efficient allocation of resources and increased overall production. Thus, the correct answer emphasizes the relationship of productivity to absolute advantage and the emphasis on cost in the case of comparative advantage.