Comparative advantage
Also called: absolute advantage
Comparative advantage is the ability to produce something at a lower opportunity cost than someone else. Trade makes both sides better off when each specialises in what they give up least to make.
David Ricardo's 1817 insight is that trade pays even when one country is better at everything (an absolute advantage), because what matters is relative cost.
Related terms
- Opportunity cost: Opportunity cost is the value of the best alternative you give up when you make a choice.
- GDP (gross domestic product): GDP is the total market value of all final goods and services produced in a country in a period.
Practise with $10,000 in play money
Free. No real money involved.
For learning only. This isn't financial advice.