Identification

• In economics, comparative advantage determines which individuals or groups will produce which products in an economy. Individuals and groups will tend to produce whichever good they have a comparative advantage in producing. For instance, if labor is the only cost related to producing goods and the workers in country A can produce a pair of shoes with one hour of labor and baseballs with two hours of labor, while the workers in country B can produce shoes with two hours of labor and baseballs with one hour of labor, country A has a comparative advantage in making shoes and country B has a comparative advantage in making baseballs. In other words, country A gives up less to make shoes than country B does.
  
  

Effects

• The principle of comparative advantage has many economic implications. Comparative advantage tends to lead to specialization and international trade. In the above example, the opportunity for country workers A to produce one baseball is two pairs of shoes because they make shoes twice as fast. In country B, the opportunity cost to produce one baseball is 0.5 pairs of shoes because they make baseballs twice as fast. In this case, country A would likely specialize in producing shoes while country B would produce baseballs and the two would trade for the goods that they have a comparative disadvantage in producing.
  
  

Misconceptions

• It is a common misconception that a country that is inefficient at producing all goods cannot have a comparative advantage in producing a good. If country A can produce shoes with one hour of labor and baseballs with two hours of labor, while country B can produce shoes with six hours of labor and baseballs with three hours of labor, country B still has a comparative advantage in producing baseballs. The opportunity cost for country B to produce one baseball is still 0.5 shoes since they are still twice as efficient at producing baseballs than shoes, even though it takes them longer to produce both types of goods than in the previous example.
  
  

Considerations

• The term "absolute advantage" describes a situation where one individual or group can produce something more efficiently than another. For instance, in the example from Section 3, country A has an absolute advantage in producing both shoes and baseballs, even though country B has a comparative advantage in producing baseballs.