Absolute And Comparative Advantage

Running the Rails: Absolute and Comparative Advantage
In the middle of the 19th century, America found itself in the midst of enormous expansion. Born out of the idea of manifest destiny, America sought to expand its borders, from the east coast all of the way to the west coast. One of largest and most important public project of the time was the construction of the transcontinental railroad, to deliver people and supplies to the west. As the railroad neared completion, it was suggested that the railroad could import cheaper British steel rails to complete the transcontinental railroad, to which Abraham Lincoln responded, “It seems to me that if we buy the rails from Britain, then we’ve got the rails and they’ve got the money. But if we build the rails here, we’ve got our rails and we’ve got our money.” It seems illogical that Lincoln would pass up on the opportunity to reduce the cost of a project of that magnitude without reason, but to understand his motives we have to discuss both the absolute advantage and comparative advantage of the situation.
Absolute Advantage

Having an absolute advantage can mean that an individual can produce the good or service with fewer inputs or they have more efficient production methods (Fontinelle, 2015). Knowing who has the absolute advantage in producing a good can be beneficial for international trade. If a country that has an absolute advantage can specialize in producing that good or service using while importing goods and services produced elsewhere(Fontinelle, 2015). For example, if America produces 50 million barrels of oil while Saudi Arabia produces 100 million barrels of oil per year, then Saudi Arabia is said to have the absolute advantage in producing oil. Furthermore, it can start specializing in producing and exporting oil while importing other