Comparative Advantage
A party has comparative advantage in producing a good when it can produce that good at LOWER OPPORTUNITY COST than another party — not necessarily with fewer resources, just at a lower sacrifice of other production. Discovered by David Ricardo (1817). Comparative advantage means TWO parties always gain from specialization and trade, even when one is better at everything in absolute terms. The framework explains globalization, supply-chain configuration, and which industries get hit when trade reverses.
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Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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