Absolute and Comparative Advantage

 Introduction
International trade is increasing in significance with globalization. Absolute and comparative advantages characterize the type of goods and services exported across boundaries. Absolute advantage refers to the ability of a country to produce a good or services in a better, quicker, and cheaper manner. The only input considered is labor
. In the case of the yard owner, he has the absolute advantage because he can do it better, cheaper, and faster than Tommy. Comparative advantage refers to the ability of a country to produce a good or service at a relatively cheaper cost than the others. Technology, climate, geographical positioning, or labor availability may contribute to these. The country with the least opportunity cost of a good or service produces it. It will take the yard owner one hour to take care of the yard; he has the alternative of doing Internet jobs and earns 100 dollars. Tommy only has the alternative of working in another yard and earning the same amount of money, therefore, Tommy has the least opportunity cost and is the best fit for the job. Absolute and comparative advantage holds true for both domestic and international trade regardless of the scale.
Absolute and comparative advantage
A classical model of international trade developed by David Ricardo explains the outlines and growth of trade in terms of comparative advantage. David was an English economist during the 19th century and his model is referred to as the Ricardian model. The Ricardian model assumes a perfectly competitive market with only one factor of production, labor. The labor is constant to the units of output. The labor requirements per unit of output vary across countries. The capacity to produce goods at a lower cost is absolute advantage. A country may have absolute advantage in producing a good or service but does not necessarily engage in the producing of the good or service because of comparative advantage (Plain Sense Economics, 2009).
The concept of comparative advantage arises from an understanding that countries and individuals have limited resources and time. Because of these the countries and individuals must engage in an economic activity that reaps them the maximum benefit. The yard owner prefers to have Tommy do his yard even if he is less experienced and will take more time. The yard owner is better off dedicating his time and effort to working because he makes more money. Tommy has almost no opportunity cost, therefore, this job is his best option (Barker, 2000).
The theory of comparative advantage explains why it is beneficial for a country or individual to engage in the trade of a good or service even if the individual or country has absolute advantage in the production. A country may have the absolute advantage of producing all goods and services but still find it beneficial to trade with other countries. Because of limited resources and time, a country must specialize. A country chooses to engage with the production of goods and services that have the maximum economic benefits and cost least to produce. A country with absolute advantage in the production of all goods and services may decide to engage in only the production of goods and services that the competitors are poorest at producing. This way, the country earns from the exportation of the goods and services and imports the other goods at low price because many are engaged in the production of the same (Brecher, Chen, & Choudhri, 2002).
Both comparative and absolute advantages have a bearing on the patterns and volumes of trade among countries and individuals. Because of absolute advantage in the production of many goods and services, many countries prefer to produce locally instead of import. This is because other factors such as politics, security, and national pride are a consideration. The trading decisions are not purely economical. Comparative advantage makes the country with the least opportunity cost to dominate the trade, driving other foreign companies out of the market. Specialization results in the decline of marginal sectors and makes them less competitive in the international arena (Barker, 2000).
The party with the absolute advantage is not necessarily the one with comparative advantage. For the case of the yard owner, he can do his yard in one hour and do it better than Tommy. Tommy care for the yard in two hours but because of his experience is less likely to achieve the same standards as the owner. The owner, however, has the option of working online and earning far much more than want he pays Tommy to care for his yard. Even though the owner has, the absolute advantage and can care for the yard better and faster, Tommy is the best option because he is no alternative of earning more within the two hours. This holds true for an individual country or company. For multinational companies that engage in the production of products requiring smaller components the theory of comparative advantage is essential. A company must decide whether to produce a component or outsource the task to another company. The company considers issues such as the cost of production, the ability of the outsourcing company to deliver, and meet standards. If the company has the means to produce the component at a cheaper price it does it, if not it outsources to a capable company (Brecher, Chen, & Choudhri, 2002).
Conclusion
Many factors influence international trade, however; comparative and absolute advantage play significant roles in characterizing the nature of a countries export. A country specialized in the production of goods and services with the least opportunity cost are bound to increase income and eventually improve factors of production, such as technology and technical knowledge through education and infrastructure. This eventually influences absolute and comparative advantage of the country to its favor. As Tommy grows up and learns other ways of earning more money, it will be more expensive for the yard owner to have him care for his yard. The yard owner will have to find another person or do it if the cost of caring for the yard exceeds the money he makes if he spends the time working.
 References
Barker, J. (2000, 07). International trade: Weighing the advantages. Credit Management, 36-37.
Brecher, R. A., Chen, Z., & Choudhri, E. U. (2002). Absolute and Comparative Advantage, Reconsidered: The Pattern of International Trade with Optimal Saving. Review Of International Economics, 10(4), 645-656.
Plain Sense Economics. (2009). Absolute and Comparative Advantage. Retrieved from: http://www.youtube.com/watch?v=RpfV0Oerfr8&list=PL37FE6E9923610890