comparative advantage

  

Definition

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.

Use this term in a sentence

  • The rain forest nation specializes in rope products, which it exports, and relies on imports for more technical products which I cannot produce, thus gaining comparative advantage in the economic marketplace.

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  • Companies should always look at the results of competing companies to determine the comparative advantage, as this can provide a view of how well the company is doing against competitors.

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  • The country had a comparative advantage in the manufacture of electronics over many other countries due to its large labor force and lower wages.

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