Benefits of International Trade and Comparative Advantage

International trade is the exchange of goods and services across national borders. It allows countries to consume beyond the limits of their own production possibilities, and it lies at the heart of the modern global economy. To understand why nations trade, economists distinguish between two related but different ideas: absolute advantage and comparative advantage.

Absolute versus comparative advantage

A country has an absolute advantage in producing a good when it can produce more of that good than another country using the same quantity of resources, or produce the same amount using fewer resources. A country has a comparative advantage when it can produce a good at a lower opportunity cost than another country. The distinction is crucial: even a country that holds an absolute advantage