To calculate absolute advantage, look at the larger of numbers for each product. One worker in Canada can produce more lumber (40 tons versus 30 tons), so Canada has the absolute advantage in lumber. One worker in Venezuela can produce 60 barrels of oil compared to a worker in Canada who can produce only 20.
To calculate absolute advantage, we can compare the amount of a particular product that each country is able to produce with the same amount of resources (such as labor, capital, and raw materials). For example, if we compare the production of lumber in Canada and Venezuela, we might find the following data:
|Lumber||40 tons||30 tons|
|Oil||20 barrels||60 barrels|
In this case, one worker in Canada can produce 40 tons of lumber, while a worker in Venezuela can produce only 30 tons. This means that Canada has an absolute advantage in the production of lumber.
On the other hand, one worker in Venezuela can produce 60 barrels of oil, while a worker in Canada can produce only 20 barrels. This means that Venezuela has an absolute advantage in the production of oil.
It’s important to note that having an absolute advantage in a particular product does not necessarily mean that a country should specialize in producing that product.
There are other factors to consider, such as the demand for the product in different countries and the opportunity cost of producing it.
For example, even though Canada has an absolute advantage in the production of lumber, it may still make sense for the country to import oil from Venezuela if the cost of producing oil domestically is higher than the cost of importing it from another country.
In addition to absolute advantage, there is also the concept of comparative advantage, which refers to a country’s ability to produce a particular good or service at a lower opportunity cost than another country.
In other words, a country with a comparative advantage in a particular product can produce it more efficiently than another country, even if it does not have an absolute advantage.
For example, let’s say that Canada and Venezuela both produce lumber and oil, but Canada has a higher opportunity cost of producing oil (because it must give up more lumber to produce a barrel of oil) than Venezuela.
In this case, Canada would have a comparative advantage in the production of lumber, while Venezuela would have a comparative advantage in the production of oil.
It’s important to understand both absolute and comparative advantage when it comes to international trade, as they can help countries make informed decisions about what goods and services to produce and import.
By specializing in the production of goods and services in which they have a comparative advantage, countries can increase their efficiency and competitiveness in the global market.