Comparative advantage
Definition. Comparative advantage exists when a country can produce a good at a lower opportunity cost than another country, meaning it gives up less of other goods to produce it. It is the basis for mutually beneficial specialisation and trade even when one country is more productive at everything.
Each country should specialise in the good in which its opportunity cost is lowest and trade for the rest. Gains from trade arise so long as opportunity costs differ between countries.
This term belongs to Comparative Advantage in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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