THE CONCEPT OF COMPARATIVE ADVANTAGE

 When you’re running a business, you want every edge you can get. The

market is competitive, and most people want a competitive advantage.

However, there is another advantage that should be studied, too. It’s called
comparative advantage
 Specialization also leads to comparative advantage. 

 The concept of comparative advantage was developed in the early 1800s by the
English economist David Ricardo. He argued that a country boosts its economic
growth the most by focusing on the industry in which it has the most substantial
comparative advantage.
 Comparative advantage is when a business or a nation can produce something at

a lower opportunity cost compared to other nations.

 Is used to explain why companies, countries, or individuals can benefit from

trade

 Comparative advantage can help a nation manufacture more of something

that is needed and that they are better at producing.

 When used to describe international trade, comparative advantage

refers to the products that a country can produce more cheaply or
easily than other countries.
 Comparative advantage introduces opportunity cost as a factor for analysis in
choosing between different options for production.
 The company with the lower opportunity cost has a comparative advantage.
 Both countries benefited economically by exporting what they could produce
most efficiently and importing what they couldn't produce as easily.

 The nation can use this information to enter into a trade relationship with

another nation so that both can benefit. When nations specialize, this

exchange creates gains from trade. This is based on the law of comparative
advantage, in which both nations are better off if they specialize and trade.

Both economies will become more productive.