Concepts
Comparative Advantage
Citation Formats
General Reference
APA Style
BibTeX
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. 2 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. 2 Cross-Tradition Connections
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.
Associated With
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.
Associated With School
The concept was developed within the classical economics tradition, most famously by David Ricardo in the early nineteenth century.
Attributed To
Additional Source WikipediaDavid Ricardo Sources
1. Encyclopaedia Britannica
Encyclopaedia Britannica, Inc.
2. Wikipedia
Wikimedia FoundationComparative advantageQuote, Comparative advantage
David Ricardo developed the classical theory of comparative advantage in 1817 to explain why countries engage in international trade
2. 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.
2. Wikipedia
2. Wikipedia
Wikimedia FoundationAttributed To: David Ricardo, David RicardoView the Source 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 TradeQuote, 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.
On the Principles of Political Economy and Taxation
Associated With School: Classical Economics, Chapter 7Quote, Associated With School: Classical Economics, Chapter 7
Ricardo set out comparative advantage as a foundation of classical trade theory in 1817.
Reader Challenges (0 open reader challenges)
No disputes yet. Spotted an error or a better source? Open the first one.
Sign in to dispute this or suggest a correction.
View At A Past Year
Choose a year to see this entry's facts and connections as the atlas records them at that moment: what it held then, what it held instead, and what it had not yet adopted. Choose Present for the current record.