Comparative advantage explains the benefits of trade from "summary" of The Economics Book by DK
Comparative advantage is a fundamental concept in economics that helps us understand why trade is beneficial for all parties involved. The idea is that countries should specialize in producing goods and services in which they have a lower opportunity cost. This means that they can produce these goods more efficiently than others. For example, imagine two countries, A and B, both producing two goods: cars and computers. Country A can produce 1 car in 10 hours and 1 computer in 5 hours, while Country B can produce 1 car in 8 hours and 1 computer in 4 hours. In this scenario, Country A has a comparative advantage in producing cars, while Country B has a comparative advantage in producing computers. If both countries specialize in producing the good in which they have a comparative advantage and then trade with each other, they can both benefit. Country A can focus on producing cars and trade them with Country B for computers, and vice versa. This way, both countries can consume more cars and computers than if they tried to produce both goods on their own. Through trade, countries can access a wider variety of goods and services at a lower cost. This leads to increased efficiency in resource allocation, higher productivity, and ultimately, higher standards of living for everyone involved. By focusing on what they do best and trading with others, countries can achieve mutual gains and prosperity.- The concept of comparative advantage helps us understand why trade is mutually beneficial for countries. By specializing in producing goods and services in which they have a lower opportunity cost and trading with others, countries can increase efficiency, productivity, and standards of living for their citizens. This is why comparative advantage is a key concept in economics that explains the benefits of trade.
