Comparative Advantage

Definition

Global marketing definition – Comparative advantage is a theory that holds that a country can gain from trade even if it has an absolute disadvantage in the production of all goods, or, that it can gain from trade even if it has an absolute advantage in the production of all goods.

Economic definition – Comparative advantage is a term that relates to both the greater absolute advantages or the smaller absolute disadvantages that a country has in economic activities as compared with other countries.

The Law of Comparative Advantage states that a country tends to export those economic goods in the production of which it has a comparative advantage and to import those economic goods in the production of which it has a comparative disadvantage. If a country has no comparative advantage, then it should tend to produce those products for which it has the least comparative disadvantage.

See Also

Absolute advantage
Competition
Imperfect competition

References

1. American Marketing Association. AMA Dictionary.