Comparative Advantage

Comparative Advantage

The rationale for countries carrying out international trade is the concept of comparative advantage.

A country has a comparative advantage in producing a good or service if the opportunity cost of producing that good or service is lower than producing any other good or service in that country, compared to other countries.  Both trading countries can then gain from trade (this is the benefit each party receives) when they both export the goods in which they have a comparative advantage.

 

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