Absolute advantage is defined as which of the following?

Absolute advantage is defined as which of the following?

• A. The advantage in the ability to produce more of a good or service with a given amount of time and resources.
• B. The price at which currencies trade, determined by the FOREX.
• C. The ratio of export prices to import prices.
• D. A restriction on cross-border investment flows.

Answer: (A)

Absolute advantage is about productive efficiency: a country has it when it can produce more of a good or service with the same amount of time and resources, meaning it is more productive overall. That’s exactly what the statement describes—outproducing others given the same inputs. The other ideas describe different concepts. The price at which currencies trade comes from the foreign exchange market, not from how much is produced. The ratio of export to import prices is a terms of trade measure, not a measure of production efficiency. A restriction on cross-border investment flows is about capital controls, not about who can produce more efficiently.

Absolute advantage is about productive efficiency: a country has it when it can produce more of a good or service with the same amount of time and resources, meaning it is more productive overall. That’s exactly what the statement describes—outproducing others given the same inputs.

The other ideas describe different concepts. The price at which currencies trade comes from the foreign exchange market, not from how much is produced. The ratio of export to import prices is a terms of trade measure, not a measure of production efficiency. A restriction on cross-border investment flows is about capital controls, not about who can produce more efficiently.