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Competitive Advantage and Related Misunderstanding
Competitive advantage is the ability one country has over another to produce a particular commodity with a comparatively lower opportunity cost. For example, Kenya has the necessary climatic conditions for the production of coffee. On the other hand, Switzerland has an advantage in the technology to manufacture refined coffee for sale in the world market. Although Switzerland can easily replicate Kenyan climatic conditions and produce coffee, it is less costly to import unrefined coffee and manufacture it. On the other hand, absolute advantage is the ability of a country to produce a product more efficiently than another country. This means that a country produces the product best.
A country can have an absolute advantage at producing everything but have comparative advantage at producing just a few products. This is because when a country produces a particular product, a certain cost (opportunity cost) is given up. This means that a country cannot produce everything efficiently in as much as it may have all the necessary structures to enable the production. Hence, it is crucial to note that every country has a comparative advantage at producing something. Comparative advantage is often misunderstood from this perspective. The public view comparative advantage as similar to absolute advantage. The question that lingers in a nonprofessionals mind is why United States does not have absolute advantage despite its immense technology. The answer lies in the fact that no any country can have a conglomeration of all the resources ranging from natural to human to produce many commodities. Additionally, in as much as this maybe the case, the technology and time dedicated to producing a diverse range of products reduces the time and technology that would otherwise be dedicated to producing a particular single commodity the best way possible. This reduces absolute advantage and works towards enhancing comparative advantage.
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