Meaning of COMPARATIVE ADVANTAGE in English

COMPARATIVE ADVANTAGE

The ability of one economic actor (an individual, a household, a firm, a country, etc.) to produce some particular good or service at a lower opportunity cost than other economic actors can. That is, the economic actor with a comparative advantage can produce the particular good or service by giving up less value in other goods or services that he could otherwise produce with his labor and resources than the other economic actors would have to give up in producing that same good or service. This perhaps can be made clearer by a hypothetical example:

Suppose both individual A and individual B are able to produce two valuable goods called "widgets" and "whatsits." For Mr. A, producing one widget requires ten hours of labor and producing one whatsit requires thirty hours of labor. For Mr. B, producing one widget requires five hours of labor and producing one whatsit requires ten hours of labor. (To keep the example simple, let us assume that both Mr. A and Mr. B each use up precisely the same amount of capital and materials when they are making the same product.) Since every hour of labor devoted to making widgets is an hour that cannot be used for making whatsits, and since there are only so many hours of working time available per month, both Mr. A and Mr. B face trade-offs in allocating their working time between the two possible activities: making more widgets means making fewer whatsits and vice versa. But the precise numerical trade-offs the two face are different. For Mr. A, every additional whatsit he produces "costs" him the three widgets he could otherwise have made in the necessary thirty hours. For Mr. B, every additional whatsit he produces "costs" him the two widgets he could otherwise have made in the necessary ten hours of labor. Because Mr. B only has to give up two widgets per whatsit, while Mr. A has to give up three widgets per whatsit, Mr. B is said to have a "comparative advantage" in whatsit making. (By the same token, Mr. A has a "comparative advantage" in widget making, since he only gives up 1/3 of a whatsit for every widget he makes, whereas Mr. B gives up 1/2 of a whatsit for each widget.)

Note that an economic actor can display a comparative advantage in the production of a particular good even when the other actor happens to have an absolute advantage in producing the same good. In our particular example, Mr. B is evidently much more efficient in making both products than Mr. A is. (In any given period of time, Mr. B can produce twice as many widgets or three times as many whatsits as Mr. A can.) Thus Mr. B has an absolute advantage in making both products, but Mr. A nevertheless still has a comparative advantage in widget making. This is because any actor's comparative advantage depends only upon the relationship between that single actor's own levels of productivity for two goods under consideration, while absolute advantage depends only upon the relationship between two actors' levels of productivity for the same single good under consideration. More...

English glossary of political economy terms.      Английский глоссарий политико-экономических терминов.