Comparative advantage refers to the ability of a country, individual, or firm to produce a good or service at a lower opportunity cost compared to others. It is based on the concept of specialization and trade.
Related terms
Absolute Advantage: Absolute advantage refers to the ability of a country, individual, or firm to produce more output using the same amount of resources compared to others.
Opportunity Cost: Opportunity cost is the value of the next best alternative that must be given up when making a decision.
Specialization: Specialization occurs when individuals, firms, or countries focus on producing goods or services in which they have a comparative advantage.