comparative advantage: a standalone construct

The principle was first set out by David Ricardo in his 1817 book On the Principles of Political Economy and Taxation, with an earlier antecedent in Robert Torrens's 1815 An Essay on the External Corn Trade. It holds that a country, or any producer, gains from trade by specialising in whatever it can make at the lowest opportunity cost, meaning the quantity of other goods it must give up to produce it, and then trading for the rest, and that this holds even when the producer is less efficient at making everything than its trading partner. Ricardo's illustration, of England and Portugal each concentrating on cloth or wine, showed that the gains from trade turn on relative costs across goods rather than on absolute superiority in any one of them. Later work developed the idea formally, with Deardorff (2005) restating it as a general law linking a country's trade pattern to its relative prices under self-sufficiency, and Costinot and Donaldson (2012) testing its predictions against agricultural output data. What makes comparative advantage a landmark is that it separates relative cost from absolute cost, and so accounts for why trade can benefit a partner that holds no absolute edge in producing anything.[1][2][3][4]

Unit

A relative property of a producer across two or more goods, expressed in opportunity cost (goods forgone) rather than in absolute output

Recovery means

Not applicable

Measured by

Identified by comparing producers' opportunity-cost ratios, or their relative prices under self-sufficiency, across goods; a producer holds the comparative advantage in the good whose relative cost is lower for it than for its partner