ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Popularized by David Ricardo, comparative advantage argues that free trade works even if one partner in a deal holds absolute advantage in all areas of production – that is, one partner makes products cheaper, better and faster than its trading partner.

Detailed explanation-2: -free trade, also called laissez-faire, a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports).

Detailed explanation-3: -In international trade, the law of comparative advantage is often used to justify globalization, since countries can have higher material outcomes by producing only goods where they have a comparative advantage, and trading those goods with other countries.

Detailed explanation-4: -The theory of comparative advantage explains why countries trade: they have different comparative advantages. It shows that the gains from international trade result from pursuing comparative advantage and producing at a lower opportunity cost.