10B_Absolute advantage example
Absolute advantage refers to the ability to produce a certain good or service at lower cost (i.e., more
efficiently)
Country A, in a year,
can make 12 planes or 6 helicopters.
What is the opportunity cost of
producing one helicopter____________
Similarly, Country B, in a year,
can make 6 planes or 12 helicopters.
What is the opportunity cost of
producing one plane____________
In a year, each country requires at least 4 planes and 4 helicopters to better their defence strength.
What should they do in such a situation?
When there is no international trade
Country A
I quarter of the year
II quarter
III quarter
Country A can use one-third of the year to make planes and the remaining to make helicopters. This
way, it would have four planes and four helicopters in a year.
Country B
Simiilarly, Country B will use one-third of the year to make helicopters and the remaining to make
planes. This way, both countries will have just enough to survive.
However, the two countries have an absolute advantage in producing one product each – Country A in
planes and Country B in helicopters. In such a scenario, both nations can profit from international
trade.
Country A should only make planes, and Country B should only make helicopters. They can then trade
six helicopters for six planes. In this case, both countries would have six of each (helicopters and
planes). Now, both countries would be better off than before because earlier (no international trade),
they were producing four units of each.