Absolute Comparative and Competitive Advantage Comparative Absolute and

Absolute, Comparative and Competitive Advantage

Comparative, Absolute, and Competitive Advantages • Everyone has something to offer. So does every company. • For a company, it’s not just the people that make it up, but also it’s location, it’s resources, etc that make it successful • Today we talk about what kinds of advantages a business can have that helps to make it successful

Absolute Advantage • The ability to produce more units of a good or service than some other producer using the same amount of resources.

Absolute Advantage Example: • Apple can produce 1000 i. Phones a day with 100 employees • Samsung can produce 800 i. Phones a day with 100 employees • Both companies pay their employees equally and fairly • Therefore, Apple has an Absolute Advantage over Samsung because they can produce more phones with the same # of employees

Comparative Advantage • The ability to produce a good or service at a lower opportunity cost than another producer • What is opportunity cost?

Opportunity Cost The loss of potential gain from other alternatives when one alternative is chosen OR The cost of NOT choosing an alternative that would have been a better opportunity for you $ wise

Opportunity Cost For Example: It takes Mike 60 mins to vacuum a room, and Debbie 45 mins. It takes Mike 30 mins to wash dishes, and Debbie 45 mins. What is Mike's opportunity cost of vacuuming compared to washing dishes? Opportunity cost is what one gives up (this example is in time) to do something else. It is costing Mike 30 minutes more to vacuum - opportunity cost is 30 minutes. He is giving up 30 minutes by vacuuming that he could have used to do something else.

Comparative Advantage • The ability to produce a good or service at a lower opportunity cost than another producer

Comparative Advantage • It is the economic basis for specialization and trade. • Think about it… • You want to specialize in producing the goods in which you have the comparative advantage… • Then trade for the goods in which others have the comparative advantage • Then we are all better off!! We aren’t wasting money and resources producing things we aren’t good at producing!

Competitive Advantage • An advantage that a firm has over its competitors that allows it to generate greater sales or margins and/or retain more customers than its competition Example • Better access to natural resources, lower wages/overhead to produce good, easy access to multiple revenue streams (ie. Borders), large population, etc.