What is the difference between absolute cost advantage and relative cost advantage?

What is the difference between absolute cost advantage and relative cost advantage Introduction: The Significance of Cost Advantage Hello everyone, and welcome to today's video. In the realm of economics, cost advantage is a term that frequently arises. It refers to the ability of a business or entity to produce goods or services at a lower cost compared to its competitors. This advantage can have a profound impact on market dynamics, profitability, and even international trade. Today, we'll be focusing on two specific types of cost advantage: absolute and relative. While they may sound similar, they have distinct characteristics and implications. So, let's dive in! Absolute Cost Advantage: A Definition To start, let's define absolute cost advantage. It's a situation where a business can produce a good or service at a lower cost than any other competitor, regardless of the scale of production. In other words, it's a pure cost advantage, independent of any external factors. This advantage can arise due to various reasons, such as access to cheaper raw materials, advanced technology, or highly efficient production processes. The key point here is that the cost advantage is inherent to the business itself, making it a potent competitive tool.