The principle of camparative trade advantage is an important concept in the theory of international tradeit can be argued that world output would increase when the principle of comparative advantage is applied.
Comparative advantage is not a static concept - it may change over time for example, nonrenewable resources can slowly run out, increasing the costs of production, and reducing the gains from trade. No, as the english economist david ricardo first explained in the early 1800s a country can have an absolute advantage in the production of a good without having a comparative advantage comparative advantage is what determines whether it pays to produce a good or import it in the news and examples don boudreaux on globalization and trade deficits podcast on econtalk.
Concept in economics that a country should specialize in producing and exporting only those goods and services which it can produce more efficiently (at lower opportunity cost) than other goods and services (which it should import) comparative advantage results from different endowments of the factors of production (capital, land, labor) entrepreneurial skill, power resources, technology, etc. Second, comparative advantage is not to be confused with the concept of competitive advantage, which may or may not mean the same thing, depending on context that said, we will learn that it is the comparative advantage that ultimately matters when deciding what countries should produce what goods and services so that they can enjoy mutual.
Absolute advantage and comparative advantage are two important concepts in international trade that largely influence how and why nations devote limited resources to the production of particular.
Comparative advantage occurs when one country can produce a good or service at a lower opportunity cost than another this means a country can produce a good relatively cheaper than other countries the theory of comparative advantage states that if countries specialise in producing goods where they have a lower opportunity cost – then there will be an increase in economic welfare. Comparative advantage versus absolute advantage absolute advantage is anything a country does more efficiently than other countries nations that are blessed with an abundance of farmland, fresh water, and oil reserves have an absolute advantage in agriculture, gasoline, and petrochemicals.
Comparative advantage is an economic law, dating back to the early 1800s, that demonstrates the ways in which protectionism (or mercantilism as it was called at the time) is unnecessary in free. Comparative advantage results from different endowments of the factors of production (capital, land, labor) entrepreneurial skill, power resources, technology, etc it therefore follows that free trade is beneficial to all countries, because each can gain if it specializes according to its comparative advantage.
The law or principle of comparative advantage holds that under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage.
A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales marginsthe law of comparative advantage is popularly attributed to english political economist david ricardo and his book “principles of political economy and taxation” in 1817, although it is likely that ricardo's mentor james mill originated the analysis.