Theory of Comparative Advantage

The Theory of Comparative Advantage explains how individuals, businesses, or countries benefit from specializing in producing goods or services where they have the lowest opportunity cost. This means focusing on what they do relatively more efficiently, even if one entity is better at producing everything, it still benefits from trading by concentrating on their strengths. By trading with others who specialize elsewhere, all parties can enjoy more goods and services than if they tried to produce everything themselves. This principle promotes efficiency and mutual benefit in international and local trade.