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Comparative Advantage

The theory of comparative advantage states that trade between two countries can benefit both countries if each country exports the goods in which it has a “relative comparative advantage.” David Ricardo coined the term. The principle explains the benefits of free trade and has a clear ethical significance. This entry will explain the content of the theory and its economic and ethical implications for the national economy.

The Economics of Comparative Advantage

Let us assume that, given the endowment of factors of production (labor, land, and capital), a worker in a foreign land is able to produce 1 unit of cloth or 1 unit of wine per day, whereas in the homeland the worker is able to produce 4 units of cloth or 2 units of wine ...

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