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Comparative Advantage and Trade


absolute advantage

the ability of one country, group, or individual to engage in a specific economic activity more efficiently than another

comparative advantage

the ability to produce a good or service at lower opportunity cost than another person or group

free trade agreement

bargain made between countries to foster trade


the process of businesses, organizations, countries, and other agents engaging in international interactions, influence, or trade, integrating multiple economies


any resource or factor of the production process needed to create a final product or service

opportunity cost

the value or benefit of the next best alternative given up when making a choice


a good or service produced by the production process


an economic measure of output per unit of input, including capital and labor


a firm's (or individual's) choice to produce the good or service for which it has lower opportunity costs


the selling and buying of goods or services

transaction cost

cost, such as shipping, that a transaction imposes that is not part of the transaction itself