Comparative advantage is the ability of an economy to produce one good or service at a lower cost than its trading partners. Comparative advantage explains why companies, countries or individuals can gain benefit from trade. When used to describe international trade, comparative advantage refers to the goods a country can produce more cheaply or more easily than other countries. Although this often reflects the value of business, some modern economists recognize that focusing only on comparative advantage. This can lead to exploitation and destruction of a country’s resources.
The law of comparative advantage is often attributed to the English political economist David Ricardo in his book On the Principles of Political Economy and Taxation written in 1817. Although it is likely that the consultant Ricardo and James Mill are the beginning of the investigation. It is the most significant concept in economic theory that becomes the basis of the argument that all actors, at all times. They can benefit from each other through cooperation and trade voluntary market. It is also a basic principle of international trade theory.
The important key to understanding comparative advantage is a solid understanding of opportunity cost. Simply put, opportunity cost is the benefit a person would lose by choosing one option over another. The opportunity cost (that is, the profit that can be lost) for one company is lower than the other). Firms with the lowest opportunity cost, and therefore the least lost profits, hold this type of profit. Another way to refer to comparative advantage is as the best option given the trade. If you are comparing two different options, each with trade-offs (some advantages and some disadvantages).