What is Comparative advantage?
Comparative advantage: Producing something at a lower opportunity cost than others.
Where Comparative advantage fits
Comparative advantage is part of Trade & Currency in Global Trade. Trade connects economies through exports, imports, tariffs, quotas and trade agreements. Comparative advantage says countries should specialize in what costs them least.
Practical tip
Check duties, rules and currency risk before entering a market.
Related terms
- Tariff
- A tax on imported goods.
- Exchange rate
- The price of one currency in another.
- Trade deficit
- Imports exceed exports in a period.
- GDP
- Total value of goods and services a country produces in a period.
- Export
- Selling goods or services to buyers in another country.
- Import
- Goods brought in from another country.
- Quota
- A limit on how much of a good can be imported.
- Free trade agreement
- A deal that removes most trade barriers between countries.
Formulas you will use with it
Test yourself
Which term means: “Producing something at a lower opportunity cost than others.”?
Comparative advantage · Free trade agreement · Export
Answer: Comparative advantage
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