How is absolute advantage different from comparative advantage?

Absolute advantage refers to the ability of a party—whether an individual, firm, or country—to produce a greater quantity of a good or service using the same amount of resources compared to another party. This concept emphasizes the overall productivity and efficiency of producing a certain good. For example, if one country can produce 10 tons of wheat using the same resources that another country uses to produce only 5 tons, the first country has an absolute advantage in wheat production.

This contrasts with comparative advantage, which focuses on the opportunity cost of production and suggests that even if one party is less efficient in the production of all goods, it may still benefit from specializing in goods that it can produce at a lower opportunity cost than others.

While absolute advantage measures superior production capabilities directly, comparative advantage illustrates the gains from trade based on relative efficiencies. Thus, the option that states absolute advantage indicates superior production capabilities is correct because it captures the essence of what absolute advantage represents in economic terms.

The other options do not accurately describe absolute advantage. Absolute advantage is not inherently connected to the ability to trade more or limited to agricultural products, nor does it always rely on a technological advantage; it is fundamentally about higher productivity in production.