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EconomicsComparative Advantage
By Sitraka Forler · Lecturer, Durham Business SchoolUpdated 13 September 2026 About this site
Gains from trade arise from differences in opportunity cost.
Ricardo showed that even if one country is worse at producing everything, both gain by specialising in what they give up least to produce. It is the theoretical backbone of free-trade economics and applies equally to people dividing labour.
Formula / theory
Specialise where opportunity cost is lowest: OC(good A) = units of B forgone per unit of A