ELI5: What is the difference between absolute advantage and comparative advantage?

Absolute advantage means that you do something better in every way than someone else. Comparative advantage means that you do something better than you do something else, even if you’re not necessarily the best at it.

For example, imagine there’s a person in the movie making business - let’s call him Steve S. - who is better at every single movie making job than anyone else in the world. He’s a better director, cameraman, film editor, and everything else. He even makes better tasting coffee faster than anyone else. Steve S. has absolute advantage in movie making.

Of course, even Steve S. can’t make a movie all by himself. At the very least, he can’t set up lights, operate a camera, hold a microphone, and act on screen at the same time. So, Steve hires people to do all these other jobs. None of them are as good as he is, but they are better at their jobs than they are at the other jobs. These people have comparative advantage.

Even Bob, who is a bit of a hapless loser and is pretty bad at almost everything he tries, has comparative advantage because he is okay at making coffee. There are several other people on set who are better at making coffee than Bob, but they are all too busy doing other jobs to have time to make the coffee - so Bob has comparative advantage at coffee making, and still has a place on the movie set.

/r/explainlikeimfive Thread