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Purpose of comparative advantage

The concept of comparative advantage explains how countries which are efficient in production can specialise and trade with countries which are inefficient so as to maximise total production and consumption, based on the concept of opportunity cost.

Definition of comparative advantage

Comparative advantage is seen when a country has a lower relative opportunity cost in the production of a good when compared to another country in the respective areas of production for similar given resources, despite not producing more units of goods as compared to another country. (One country is efficient in the production of both goods while the other country is inefficient in the production of both goods: specialisation for the efficient country is based on the goods with higher relative efficiency while specialisation for the production of country which is inefficient is based on the good with lower relative efficiency.