In a brief paragraph discuss the difference between absolute and comparative advantage. Identify an example of how comparative advantage prompts trade.

Absolute advantage refers to the ability of a country or entity to produce a good or service more efficiently than another, using fewer resources. In contrast, comparative advantage occurs when a country can produce a good at a lower opportunity cost than another, making it advantageous for them to specialize in that good and trade with others. For example, suppose Country A can produce both wheat and cars but has a greater efficiency in producing cars compared to Country B, which is more efficient at producing wheat. Even if Country A has an absolute advantage in both goods, it has a comparative advantage in cars due to a lower opportunity cost. By specializing in cars and trading with Country B for wheat, both countries can benefit from increased overall production and consumption. This illustrates how comparative advantage fosters trade and enhances economic efficiency.