Question

What is meant by the term “comparative advantage”?

Answer 1

Comparitive Advantage : It can be defined as the ability of a person or an individual to conduct economic acctivities more better and efficiently that the rest of others. It actually empasises on the term 'comparison' that is one product will have the comparitive advantage of having lower production cost than the rest of the others. It could also mean even if your product doesn't have everything that the consumers desires for but still have something unique or special for which the consumers are ready ready to sacrifise the rest of the benefits. In economics, Comparitive Advantages has so much importance that even the foundation theory of principle of international trade is based upon this term. In economics comparitive advantage is the power to produce an output with keeping its cost lower than its opportunity cost.

There is a theory on comparitive advantage was described by Daniel Ricardo in the year 1817 upon his book " On The Principles Of political Economy And Taxation ". In comparitive advantage individuals might not produce vert huge amount of output but their opportunity cost wil be less. Daniel Ricardo emphasised comparitive advantage in international trade by giving examples of Portugal and England. Even though both Portugal as well as England produced wine and clothes, Portugal produced them at relatively less labor rate. The theory on Comparitive Advantage is made inorder to prove that in the long run trade cannot be protected. Comparitive Advantage is the one unique quality for which the customers might tend to attract more. It also comes when  a company decides to sell a good at a less price than its competitors which helps them to grasp a competitive advanteges over its competitors, believing that the customers will prefer the goods with less sales price that with those with high prices.