Comparative Advantage Calculator
Calculate comparative advantage and opportunity cost between two producers or countries to determine who should specialize in what.
What Is Comparative Advantage? Introduced by David Ricardo in 1817, comparative advantage states that a producer should specialize in the good for which they have the lowest opportunity cost — even if they are less efficient at producing everything (absolute disadvantage).
Absolute vs Comparative Advantage Absolute advantage: producer A makes more of a good per hour than producer B. Comparative advantage: producer A gives up less of good Y to make one unit of good X. These are different — and comparative advantage is what drives mutually beneficial trade.
Opportunity Cost Opportunity cost of Good X = Units of Good Y given up per unit of Good X produced. If Country A can produce 10 wheat or 5 cloth per hour, then 1 cloth costs 2 wheat (opportunity cost). If Country B can produce 6 wheat or 4 cloth per hour, 1 cloth costs 1.5 wheat. Country B has comparative advantage in cloth; Country A in wheat.
Gains From Trade When each producer specializes according to comparative advantage and trades, total output increases. Both parties can consume more than they could in isolation. This is the economic case for free trade.