In: Economics
Comparative advantage refers to the cost of producing certain product in which the country is in specialisation. Countries can gain if it produces that product in which it has the specialisation. This would lead to rise in overall production level of the world.
Now, taking example of two countries: China and Ireland
China has the largest number of labour available so it can produce that product in which it can use more labour and the cost of producing the product also falls down.
Ireland has a large variety of milk producing products and milk production is done on a very large scale. It has the specialisation in it.
China has the comparative advantage in production of electronic commodities as there is abundance of labour. It can produce electronic commodities on a large scale and export it to Ireland.
Ireland on the other hand as specialisation in production of milk so it can produce milk producing commodities and export that to China.
This will lead to removal of trade barriers among both the countries will at the same time lead to profit for both the countries. China can get milk products in low prices and Ireland can also get electronic products at low prices.
Overall production of the world will also rise due to production of that commodity that the country is in specialisation.