What does comparative advantage refer to in economics?

Comparative advantage refers specifically to the ability to produce goods or services at a lower opportunity cost compared to others. This concept emphasizes that even if one producer is more efficient overall in multiple areas, they should focus on the production of goods for which they have the lowest opportunity cost. This allows for greater overall efficiency and mutual benefits when trading.

For instance, if one country can produce both cars and computers very efficiently, but it has a much lower opportunity cost in computer production, it should specialize in computer production while trading for cars. This specialization allows for more efficient use of resources and maximizes total output. The principle of comparative advantage underlies the benefits of trade and encourages countries or individuals to engage in activities where they hold a relative advantage in production, leading to better resource allocation and increased economic welfare.