Ricardo's Law (comparative advantage)

Ricardo's Law of Comparative Advantage states that countries should specialize in producing goods where they have the lowest opportunity cost, meaning they give up less of other goods to produce it. Even if one country is more efficient at producing all goods, both countries benefit from trading if each focuses on what they produce relatively better. This specialization leads to increased overall efficiency and mutual gains, as resources are allocated more effectively across nations. In essence, comparative advantage encourages countries to trade based on their relative strengths to maximize benefits for all involved.