Comparative advantage is the principle that two trading parties, whether individuals, firms or countries, can both gain from trade even when one of them is more efficient than the other at producing everything, so long as each specializes in producing the good it can produce at the lowest opportunity cost relative to the other. The idea was developed within the classical economics tradition, most famously by David Ricardo in the early nineteenth century, as an argument for free trade against the mercantilist view that a nation gains only when it wins at the expense of its trading partners. Comparative advantage remains one of the most widely taught and most widely debated propositions in economics, since its conclusions depend on assumptions, including full employment and costless movement of resources between industries, that do not always hold in practice.
Facts
Proposed ByDavid Ricardo, who developed the classical theory of comparative advantage in 1817. 3 SignificanceWidely regarded as one of the most powerful yet counter-intuitive insights in economics: comparative advantage, not absolute advantage, is what drives the gains from international trade. 3 Classification
Concept Form Connections
Associated With
Source ASEAN (Wikipedia)
Source Caribbean Community (Wikipedia)
The WTO's rules based trading system rests on the classical case, first formalized by David Ricardo, that nations gain from specializing according to comparative advantage and trading openly, though real trade negotiations weigh many other national interests alongside this principle.
Source World Trade Organization (Official Website)
Critiqued Here
Why this is disputed. UNCTAD was built around founding Secretary-General Raul Prebisch's structuralist critique of the classical case for comparative-advantage-based free trade, arguing it left commodity-exporting economies permanently disadvantaged against manufacturing exporters.
Source UNCTAD (United Nations Office at Geneva)
Associated With School
The concept was developed within the classical economics tradition, most famously by David Ricardo in the early nineteenth century.
Source On the Principles of Political Economy and Taxation
Attributed To
Source On the Principles of Political Economy and Taxation
Additional Source Comparative advantage (Wikipedia)David Ricardo
Sources
1. Comparative advantage (Wikipedia)
lead paragraph, sentence beginning: Comparative advantage is an economic principle that explains
Comparative advantage is an economic principle that explains why people, firms, and countries can often benefit from trade even when one party is more productive at producing every good or service.
Comparative advantage
David Ricardo developed the classical theory of comparative advantage in 1817 to explain why countries engage in international trade
- Attributed To: David Ricardo, David Ricardo
In Group: Trade and Payments Concepts, Lead
Comparative advantage is an economic principle that explains why people, firms, and countries can often benefit from trade even when one party is more productive at producing every good or service.
View the Source2. Encyclopaedia Britannica
3. Wikipedia
Wikimedia FoundationComparative advantage, History sectionQuote, Comparative advantage, History section
In 1817, David Ricardo published what has since become known as the theory of comparative advantage in his book On the Principles of Political Economy and Taxation.
World Trade Organization (Official Website)
World Trade OrganizationAssociated With: World Trade OrganizationView the Source UNCTAD (United Nations Office at Geneva)
United Nations Office at GenevaAssociated With: United Nations Conference on Trade and Development
On the Principles of Political Economy and Taxation
Attributed To: David Ricardo, Chapter 7, On Foreign Trade
Ricardo set out the principle in his 1817 On the Principles of Political Economy and Taxation, showing that two countries each gain from trade by specializing in the good each produces at the lowest opportunity cost, even when one country is more efficient at producing everything.
Associated With School: Classical Economics, Chapter 7
Ricardo set out comparative advantage as a foundation of classical trade theory in 1817.
ASEAN (Wikipedia)
WikipediaAssociated With: Association of Southeast Asian Nations, Wikipedia ASEAN article, ASEAN Economic Community sectionQuote, Associated With: Association of Southeast Asian Nations, Wikipedia ASEAN article, ASEAN Economic Community section
The AEC aims to 'implement economic integration initiatives' to create a single market for member states.
Caribbean Community (Wikipedia)
WikipediaAssociated With: Caribbean Community, Wikipedia CARICOM article, lede/ObjectivesQuote, Associated With: Caribbean Community, Wikipedia CARICOM article, lede/Objectives
It has the primary objective to promote economic integration and cooperation among its members, ensure that the benefits of integration are equitably shared, and coordinate foreign policy.
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