Business, Legal & Accounting Glossary
Comparative advantage refers to an economic unit’s relative ability to produce more goods at a lower price than another unit.
Comparative advantage says that while one unit (or nation) may be able to produce fewer of a product that another unit, both can gain by having the less-productive unit focus its resources to producing that which it is most efficient or competitive. Then when they trade, both will be better off and will be able to consume more.
When the country or unit that is more productive moves its resources and efforts into other areas, it creates an opportunity for itself. It must focus on producing the product at which it is best.
Comparative is a key theory to understanding international trade. It was developed by David Ricardo.
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This glossary post was last updated: 29th March, 2020 | 0 Views.