In economic theory, a country has a comparative advantage over another in the
production of a good if it can produce it at a lower opportunity cost. That
means it has to give up less labor and resources in other goods in order to
produce it.
Source: GreenFacts, based on: Companion Website for John Sloman's Economics
Glossary
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According to the principle of comparative advantage, the gains from trade
follow from allowing an economy to specialise. If a country is relatively better
at making wine than wool, it makes sense to put more resources into wine, and to
export some of the wine to pay for imports of wool. This is even true if that
country is the world's best wool producer, since the country will have more of
both wool and wine than it would have without trade. A country does not have to
be best at anything to gain from trade. The gains follow from specializing in
those activities which, at world prices, the country is relatively better at,
even though it may not have an absolute advantage in them.
