What does the concept of comparative advantage refer to?

The concept of comparative advantage refers to the ability of a country to produce a good at a lower opportunity cost than another country. This principle suggests that even if one country can produce all goods more efficiently than another country, both nations can still benefit from trade by specializing in the production of goods for which they have a comparative advantage.

For example, if Country A can produce both cars and clothing more efficiently than Country B, but has a significantly lower opportunity cost in producing cars, then Country A should specialize in car production. Country B, despite being less efficient overall, might have a lower opportunity cost for clothing and should focus on that. By both countries specializing in their respective comparative advantages, they can trade and enjoy a greater overall level of production and consumption than if they attempted to produce everything domestically.

This concept underpins the rationale for international trade, as it illustrates how countries can benefit from economic cooperation and specialization based on opportunity costs rather than just absolute costs of production.