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.
![Calculate Comparative Advantage.](https://www.learntocalculate.com/wp-content/uploads/2020/07/COMPARATIVE-ADVANTAGE-1024x124.png)
Example:
Suppose Kenya produces 50,000 tonnes of soda ash and 30,000 tonnes of tea. Calculate Kenya’s the comparative advantage.
![Calculate Comparative Advantage.](https://www.learntocalculate.com/wp-content/uploads/2020/07/COMPARATIVE-ADVANTAGE-2-1024x311.png)
Therefore, Kenya’s comparative advantage is 166.67.