Definition of Comparative advantage:
Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.
The ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity.
The law of comparative advantage is popularly attributed to English political economist David Ricardo and his book “On the Principles of Political Economy and Taxation” in 1817, although it is likely that Ricardo's mentor James Mill originated the analysis.
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. It therefore follows that free trade is beneficial to all countries, because each can gain if it specializes according to its comparative advantage. Basic concept of international trade theory, it is founded on the work of the UK economist David Ricardo (1772-1823) on comparative cost.
How to use Comparative advantage in a sentence?
- The country had a comparative advantage in the manufacture of electronics over many other countries due to its large labor force and lower wages.
- Absolute advantage refers to the uncontested superiority of a country to produce a particular good better. Comparative advantage introduces opportunity cost as a factor for analysis in choosing between different options for production.
- Comparative advantage suggests that countries will engage in trade with one another, exporting the goods that they have a relative advantage in productivity.
- Companies should always look at the results of competing companies to determine the comparative advantage , as this can provide a view of how well the company is doing against competitors.
- The idea of this approach is that because of social practices, institutional complementalities develop within a nation-state that create comparative advantages in certain activities and products.
- The rain forest nation specializes in rope products, which it exports, and relies on imports for more technical products which I cannot produce, thus gaining comparative advantage in the economic marketplace.
- The theory was first introduced by David Ricardo in the year 1817.
Meaning of Comparative advantage & Comparative advantage Definition