Principle of comparative advantage

Definition

The principle of comparative advantage is the economic theory suggesting that countries should specialize in producing and exporting goods and services for which they have a lower opportunity cost than other nations. This specialization can lead to increased efficiency and mutual benefits through trade.

Related terms

Opportunity Cost:

The loss of potential gain from other alternatives when one alternative is chosen.

Specialization:

A method of production where a business, area, or economy focuses on the production of a limited scope of products or services to gain greater degrees of productive efficiency within an overall system.

International Trade:

The exchange of goods and services between countries, which allows for the expansion of markets and access to resources or products not available domestically