What is comparative advantage?

Comparative advantage is the ability of a country or firm to produce a good or service at a lower opportunity cost than others.

It explains why countries engage in international trade.

Even if one country can produce everything more efficiently, it can still benefit from trading with other countries by focusing on what it produces best.

For example, if Country A is better at making cars and Country B is better at growing coffee, both countries benefit by trading cars for coffee.

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