"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 explaining how countries benefit from specializing in the production of goods and services in which they have a lower opportunity cost.
Trade and Globalization: Trade is the exchange of goods and services between countries. Globalization is the process of increasing interconnectedness between countries.
Absolute Advantage: Absolute advantage refers to a country's ability to produce a particular good more efficiently than another country.
Opportunity Cost: Opportunity cost is the cost of foregone alternatives. When a country produces one good, it must give up the production of another good.
Relative Prices: Relative prices represent the exchange rate between two goods. They are determined by supply and demand.
Production Possibility Frontier: The production possibility frontier represents the maximum combinations of two goods that can be produced by a country with its given resources.
Comparative Advantage: Comparative advantage refers to a country's ability to produce a particular good at a lower opportunity cost than another country.
Terms of Trade: Terms of trade refer to the exchange rate between a country's exports and imports.
Welfare Effects of Trade: For a country to be better off by trading, its total welfare must increase due to the benefits of comparative advantage.
Protectionism: Protectionism refers to the policies that restrict imports through tariffs or other barriers.
Free Trade Agreements: Free trade agreements reduce trade barriers and facilitate the flow of goods and services between countries.
Trade Blocs: A trade bloc is a group of countries that have signed a free trade agreement.
Multilateral Trade Agreements: Multilateral trade agreements involve multiple countries agreeing to reduce trade barriers.
Dumping: Dumping refers to the practice of selling goods at a price below their cost of production.
Trading Blocs and the World Trade Organization: The World Trade Organization (WTO) is responsible for regulating international trade and resolving trade disputes between countries.
Trade Surpluses and Deficits: A trade surplus occurs when a country's exports exceed its imports. A trade deficit occurs when a country's imports exceed its exports.
Natural Resource Endowment: Countries are endowed with natural resources like oil, gas, minerals;.
Labor Cost: Countries have lower labor costs due to availability, efficiency, or technological advancement;.
Technological superiority: Countries have advanced technology in one sector, giving them a competitive edge over countries that are less technologically advanced in that sector;.
Climate: Countries have superior climatic conditions, which favors the production of certain crops or goods;.
Economies of Scale: Larger economies of scale allow firms to be more productive and efficient, meaning that they can produce goods at a lower cost;.
Geographic Location: Countries located closer to major markets or trade routes have lower transportation costs and access to a larger customer base;.
Capital availability: Countries have access to cheaper capital which can be used to invest in production processes, thereby improving the efficiency of the production process;.
Government policies: Countries that have policies that favor domestic production, such as subsidies or tax breaks, have a comparative advantage over countries that don't have such policies;.
Innovation: Countries with innovative R&D sectors that drive innovation in specific industries have a comparative advantage;.
Education: Countries with highly educated populations have a comparative advantage in industries that require highly skilled labor, such as high-tech industries.
"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..."