What is the theory of comparative advantage?

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Comparative advantage was created to explain the differences in production and trade of the same product in different countries. The idea was to analyze the opportunity cost, that is, the value that is given up by focusing on a specific industry.

David Ricardo's book uses wine production in Portugal and textile production in England as examples. If the Portuguese can make wine so hungary mobile database and the English have such efficient manufacturing, why doesn't each focus on their own 'vocation' and trade their products among themselves?

In this way, both countries would be able to optimize their means of production and develop good items at a low cost, thus importing what they did not have the expertise to make.

Therefore, when it is said that a country has a comparative advantage over another, it means that it is able to produce a certain product with greater quality and efficiency.


In this sense, opportunity cost ends up being the concept that best explains the theory of comparative advantage. This is because it highlights the most efficient production in each territory and, therefore, advises that they import products with higher costs and export products with lower productivity costs in the region.

Which advantage should your company focus on?
At first glance, it is obvious that the answer points to competitive advantage. After all, with so many new things emerging all the time, it is impossible to remain distracted and wait for opportunities to pass by.
The writer, Harvard professor and PhD in economics Michael Porter created the concept of Porter's 5 forces. This is a model that can be used to better understand the market in which a company operates and develop strategies.