Economics, 3rd Edition

comparative advantage.

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 What this means is that one country might be better at producing a number of 

goods compared to another. However, if it focuses its attention on producing 

the good in which it has a comparative advantage, both countries can gain from 

trade and the world economy will be in a better state. By focusing on production 

of one good at the expense of others, countries move resources from the produc-

tion of one good to another. By doing so, the country sacrifices the output of this 

other good that it could have produced. However, the gains made from shifting 

resources into production of products in which they are more efficient in produc-

tion helps to raise total output. A mutually beneficial rate of exchange between 

the two countries means they both are better off than before.