Absolute Advantage
What is absolute advantage?
The ability to produce more output with the same inputs or the same output with fewer inputs.
What is comparative advantage?
The ability to produce a good at a lower opportunity cost than another producer or country.
What is competitive advantage?
The unique attributes or strategies that allow a company to outperform competitors.
Which strategy focuses on offering unique products or services?
Differentiation.
Which advantage focuses on productivity and producing more with fewer resources?
Absolute advantage.
What should a country do if it has an absolute advantage in a product?
Specialize in producing and exporting that product.
According to comparative advantage, what should countries specialize in?
Goods and services with the lowest opportunity cost.
Who proposed the theory of competitive advantage?
Michael Porter.
Which strategy seeks to offer products at the lowest possible cost?
Cost leadership.
Which advantage focuses on sacrificing less when producing a good?
Comparative advantage.
Mention one characteristic of absolute advantage.
- Greater efficiency.
- Lower cost per unit.
- Resource efficiency.
Comparative advantage is based on what key concept?
Opportunity cost.
Mention two sources of competitive advantage.
- Technology.
- Human capital.
- Brand loyalty.
- Sustainability.
- Natural resources.
Which strategy targets a specific market segment?
Focus strategy.
A company develops a unique AI system that competitors cannot copy. What type of advantage is this?
Competitive advantage.
Which economist introduced the theory of Absolute Advantage?
Adam Smith.
True or false: A country can benefit from trade even if another country is more efficient in producing everything
True.
Name the two basic types of competitive advantage.
Cost advantage and differentiation advantage.
Mention three ways a company can achieve cost leadership.
- Economies of scale.
- Efficient operations.
- Strong supply chain management.
- Superior technology.
- Access to cheaper resources.
A country can produce both coffee and wheat more efficiently than another country. Why can trade still be beneficial?
Because comparative advantage depends on opportunity cost, not only productivity.
Mention two limitations of absolute advantage.
- Assumes advantages are static.
- Can encourage dependence on low-value exports.
- Is insufficient to explain fair global trade.
Mention two risks of focusing only on comparative advantage.
- Resource depletion.
- Labor exploitation.
- Over-dependence on a single sector.
What four characteristics should a sustainable competitive advantage have?
Valuable, Rare, Difficult to Imitate, and Non-substitutable.
What are the two main ways to achieve sustainable competitive advantage?
Exploiting external changes and developing internal resources.
A country produces electronics using fewer resources than its competitors. However, it specializes in software because giving up electronics production costs less than in other countries. Meanwhile, a company in that country dominates the software market through innovation and strong branding.
Identify the three types of advantage present in the scenario.
- Absolute Advantage: Producing electronics with fewer resources.
- Comparative Advantage: Specializing in software due to lower opportunity cost.
- Competitive Advantage: Dominating the market through innovation and branding.