"In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade."
A theory suggesting that countries specialize in the production of goods and services that they can produce most efficiently, and then trade with other countries to acquire other necessary goods and services.
Absolute Advantage: Understanding the concept of absolute advantage in which one country can produce a good or service more efficiently than another country.
Opportunity Cost: Understanding the concept of opportunity cost in which a country can produce a good or service it is less efficient at producing, but the benefits outweigh the costs.
Comparative Advantage: Understanding the concept of comparative advantage in which one country has a lower opportunity cost of producing a good or service than another country.
Trade Policies: Understanding the various trade policies such as tariffs, subsidies, and quotas and how they affect international trade.
Specialization: Understanding how countries can benefit from specialization in producing goods and services they have a comparative advantage in.
Terms of Trade: Understanding how the terms of trade affect trade patterns and trade outcomes.
Factor Endowments: Understanding how differences in factor endowments, such as labor and capital, can affect comparative advantage and trade patterns.
Balance of Payments: Understanding the balance of payments and how it is affected by international trade.
Protectionism: Understanding the concept of protectionism and how it limits international trade.
Regional Economic Integration: Understanding the various forms of regional economic integration such as free trade areas, customs unions, and economic unions and how they affect international trade.
Natural Advantage: A country may have a comparative advantage in producing certain goods due to its naturally endowed resources, such as fertile land, mineral deposits, and natural forests.
Labor Advantage: A country may be able to produce goods more efficiently by using more skilled or cheaper labor. This can be due to differences in education, training, and wages.
Capital Advantage: A country may have a comparative advantage in producing goods that require substantial amounts of capital, such as advanced technology and equipment. This is often the case in developed countries where there is a higher level of investment in research and development.
Technological Advantage: A country may have a competitive edge in producing goods due to its technological know-how and innovation. This can include innovations in manufacturing processes, new products and services, and advanced machinery.
Infrastructure Advantage: A country may have a comparative advantage in producing goods that depend on advanced infrastructure, such as transportation networks, communication systems, water supply, and energy sources.
Government Advantage: A country may be able to gain a comparative advantage through government policies, such as taxes, subsidies, tariffs, import/export restrictions, and intellectual property laws that favor certain industries over others.
Economies of Scale Advantage: A country may have a comparative advantage in producing goods that depend on achieving economies of scale, that is, producing large quantities of goods at lower costs per unit. This is often the case in industries that require significant investments in fixed capital, such as automobile and aerospace manufacturing.
Quality Advantage: A country may have a comparative advantage in producing high-quality goods that are in demand in foreign markets. This can be due to differences in the level of education, training, and technical expertise.
Climate Advantage: A country may have a comparative advantage in producing certain goods due to its favorable climate conditions, such as a warm and sunny climate for agriculture or a cold and snowy climate for winter sports.
Cultural Advantage: A country may have a comparative advantage in producing cultural goods, such as music, art, literature, and entertainment, that reflect its unique cultural heritage and identity.
"Comparative advantage describes the economic reality of the work gains from trade for individuals, firms, or nations, which arise from differences in their factor endowments or technological progress."
"David Ricardo developed the classical theory of comparative advantage in 1817..."
"He demonstrated that if two countries capable of producing two commodities engage in the free market... then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good..."
"...with the assumption that the capital and labour do not move internationally..."
"...each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good, provided that there exist differences in labor productivity between both countries."
"The absolute advantage, comparing output per time (labor efficiency) or per quantity of input material (monetary efficiency), is generally considered more intuitive, but less accurate — as long as the opportunity costs of producing goods across countries vary, productive trade is possible."
"Widely regarded as one of the most powerful yet counter-intuitive insights in economics, Ricardo's theory implies that comparative advantage rather than absolute advantage is responsible for much of international trade."
"Agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price..."
"...differences in their factor endowments or technological progress."
"David Ricardo developed the classical theory of comparative advantage in 1817 to explain why countries engage in international trade even when one country's workers are more efficient at producing every single good than workers in other countries."
"...each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good..."
"...with the assumption that the capital and labour do not move internationally..."
"...there exist differences in labor productivity between both countries."
"The absolute advantage, comparing output per time (labor efficiency) or per quantity of input material (monetary efficiency), is generally considered more intuitive, but less accurate — as long as the opportunity costs of producing goods across countries vary, productive trade is possible."
"Ricardo's theory implies that comparative advantage rather than absolute advantage is responsible for much of international trade."
"...if they can produce that good at a lower relative opportunity cost or autarky price..."
"Comparative advantage describes the economic reality of the work gains from trade for individuals, firms, or nations, which arise from differences in their factor endowments or technological progress."
"David Ricardo developed the classical theory of comparative advantage in 1817..."
"Widely regarded as one of the most powerful yet counter-intuitive insights in economics..."