Comparative Advantage

Mon, 08 Mar 2021 12:26:34 +0000

When trade became more widespread and countries started mass-producing goods, it became important to figure out which goods to produce for export in exchange for what. Each country obviously has the potential to create all the products it needs, but we'd rather trade for profits. Comparative advantage comes in here and as the name suggests, it is a theory that posits that it would be more profitable to produce more or less of a good based on its cost of production compared to the cost of importing.