Comparative Advantage
Economic principle that countries benefit from specializing in products with lowest opportunity cost.
Formula
Comparative Advantage: specialise where Opportunity Cost is lowest
Real World
Bangladesh has a comparative advantage in garment manufacturing — even though it is less efficient than Germany at producing everything, its low labour costs mean the opportunity cost of making clothes is far lower than Germany's.
Exam Focus
Do not confuse comparative advantage (opportunity cost) with absolute advantage (output per unit) — this is the most common error on this topic.
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