A country has an absolute advantage over another in producing a good, if it can produce that good using fewer resources than another country.
For example if one unit of labor in Australia can produce 80 units of wool or 20 units of wine; while in France one unit of labor makes 50 units of wool or 75 units of wine, then Australia has an absolute advantage in producing wool and France has an absolute advantage in producing wine.
Australia can get more wine with its labor by specializing in wool and trading the wool for French wine, while France can benefit by trading wine for wool.
- Country A can produce one widget using one unit of labour.
- Country B can produce one widget using two units of labour.
- Country A has an absolute advantage over Country B in producing widgets.
- Country A has 100 units of labour. It uses 20 to produce 80 units of Parachutes, and 80 to produce 20 units of Barbie dolls.
- Country B has 100 units of labour. It uses 40 to produce 100 units of Barbie dolls, and 60 to produce 20 units of Parachutes.
- If the countries maximized their potential, Country A could produce 400 units of Parachutes, and country B could produce 250 units of Barbie dolls. Through trade, the two countries would achieve a more efficient allocation of resources and increase their prosperity.