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The principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources.
Comparative advantage refers to the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another. Even if one country is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative.
For example, if, using machinery, a worker in one country can produce both shoes and shirts at6 per hour, and a worker in a country with less machinery can produce either2 shoes or4 shirts in an hour, each country can gain from trade because their internal trade-offs between shoes and shirts are different. The less-efficient country has a comparative advantage in shirts, so it finds it more efficient to produce shirts and trade them to the more-efficient country for shoes.
Absolute advantage is when a country uses fewer resources to produce a good. Countries X and Y both have a workforce of100 people. It takes country X less worker weeks to assemble computers than country Y, but country Y has an absolute advantage in timber production as they can cut more trees than country X in the same number of worker weeks.
Comparative advantage speaks in terms of opportunity costs. A country has a comparative advantage in the production of a good if it can do it at a LOWER opportunity cost than another country. (Comparative advantage is used for trade). Country X can produce100 computers or50 trees with100 workers. Country Y can produce50 computers or150 trees with100 workers. Country X has the comparative advantage in computers because to make1 tree they give up2 computers. Country Y gives up3 trees when they make1 computer so it has a comparative advantage in trees.
