Comparative advantage is an economic term that refers to an economy’s ability to produce goods and services at a lower opportunity cost than that of trade partners.
The law of comparative advantage describes how, under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage.
Formula to calculate comparative advantage.
Suppose Kenya produces 50,000 tonnes of soda ash and 30,000 tonnes of tea. Calculate Kenya’s the comparative advantage.
Therefore, Kenya’s comparative advantage is 166.67.