Comparative Advantage

Comparative Advantage is an economic principle that states that individuals, regions, or nations can benefit from specializing in the production of goods or services in which they have a lower opportunity cost or comparative advantage, relative to other activities or trading partners. Comparative advantage arises from differences in resource endowments, technology, skills, and production efficiencies, allowing for gains from trade and specialization based on relative productivity or efficiency levels. Comparative advantage underpins international trade theory and promotes economic efficiency and welfare gains through specialization and exchange.