Absolute Advantage

One way to answer the question about the cost of producing potatoes is to compare the imputs required by the two producers. Economists use the term absolute advantage when comparing the productivity of one person, firm, or nation to that of another. The producer that requires a smaller quantity of imputes to produce a good is said to have an absolute advantage in producing that good.

In our example, time is the only imputes so we can determine absolute advantage by looking at how much time each type of production takes. The rancher has an absolute advantage both in producing meat and in producing potatoes because she requires less time than the farmer to produce a unit of either good. The rancher needs to imput only 20 minutes to produce an ounce of meat whereas the farmer needs 60 minutes. Similarly, the rancher needs only 10 minutes produce an ounce of potatoes, whereas the farmer needs 15 minutes. Based on this information we can conclude that the rancher has the lower cost of producing potatoes, if we measure cost by the quantity of imputes.

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