Comparative advantage is where one person – or country – is relatively more efficient at producing a good or service than another person or country.  Given that this is filed in the Macroeconomics section, I’m going to be talking about countries from here.

If two countries specialise in goods that they have a comparative advantage in producing, both are likely to be better off.  This is the case even where one country is better at producing both goods.  Consider a theoretical example – the two countries are Australia and Japan, and the goods are TVs and cars.  An example might help. (more…)