comparative advantage



Concept in economics that a country should specialize in producing and exporting only those goods and services which it can produce more efficiently (at lower opportunity cost) than other goods and services (which it should import). Comparative advantage results from different endowments of the factors of production (capital, land, labor) entrepreneurial skill, power resources, technology, etc. It therefore follows that free trade is beneficial to all countries, because each can gain if it specializes according to its comparative advantage. Basic concept of international trade theory, it is founded on the work of the UK economist David Ricardo (1772-1823) on comparative cost.

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  • China, India and other developing nations have comparative advantage in production of labor-intensive products due to their low-priced labor in relation to the United States.

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