Comparative advantage is an economic concept that describes a countrys ability to produce a particular good or service at a lower opportunity cost than its trading partners. Opportunity cost is the value of what is given up to produce something. A person, firm, or country has 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.
The theory of comparative advantage shows that even if a country enjoys an absolute advantage in the production of goods, trade can still be beneficial to both trading partners. For example, if Country A can produce both goods X and Y more efficiently than Country B, but the opportunity cost of producing good X is lower in Country B, then Country B should specialize in producing good X and trade with Country A for good Y. This allows both countries to consume more of both goods than they would have been able to produce on their own.
Comparative advantage is a key principle in international trade and forms the basis of why free trade is beneficial to countries. However, there are some economists who dispute the claims of the benefit of comparative advantage.
