Absolute Advantage Law and Legal Definition

Absolute Advantage is the general ability to produce more goods using fewer resources. This idea of absolute advantage is important for trading that occurs between both people and nations. A nation can get an absolute advantage from an advanced level of technology or higher quality resources. For a person, an absolute advantage can result from natural abilities or the acquisition of human capital such as education, training, or experience.

Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input. Since absolute advantage is determined by a simple comparison of labor productivities, it is possible for a party to have no absolute advantage in anything; in that case, according to the theory of absolute advantage, no trade will occur with the other party.It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost.