What is 'Comparative advantage' in Economics?

A person is said to possess comparative advantage in producing a good if he can produce it at a lower opportunity cost. For example, a high-skilled surgeon who earns millions would lose a lot more (in potential income) if he chooses to spend his day mowing the lawn than if he employs a low-skilled labourer to do the job. Here, the low-skilled labourer is said to possess a comparative advantage over the surgeon because of his lower opportunity cost to mow the lawn. The theory of comparative advantage, proposed by British political economist David Ricardo, has traditionally been used to explain the benefits of free trade.

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Printable version | Oct 3, 2022 6:43:09 am |