Comparative Advantage Calculator

What is Comparative Advantage?

Comparative advantage is an economic principle describing how under free trade, an agent will produce more of and consume less of a good for which they have a lower opportunity cost. First formulated by economist David Ricardo in 1817, it demonstrates why international trade benefits all participating economies.

Absolute vs. Comparative Advantage

• Absolute Advantage: Ability of an entity to produce more total output of a good or service using the same amount of resources.
• Comparative Advantage: Ability of an entity to produce a good at a lower opportunity cost than a trading partner.

Opportunity Cost Formula

$$\text{Opportunity Cost of Good A} = \frac{\text{Output of Good B}}{\text{Output of Good A}}$$

$$\text{Opportunity Cost of Good B} = \frac{\text{Output of Good A}}{\text{Output of Good B}}$$