Comparative advantage is a theory that states that a net benefit accrues to any two countries (or companies or people) from specialization and trade if one can produce a good or service at a lower opportunity cost than the other. Opportunity cost is the benefit that one person or country loses by choosing one option over another. The person or country with the lower opportunity cost has a comparative advantage. This contrasts with absolute advantage, which is the ability of a person or country to produce a good or service at a lower cost than another.
The benefits of comparative advantage can be illustrated with a simple example. A lawyer who is better at producing legal services and faster at typing than his/her secretary can produce $200 per hour in legal services and $30 per hour in typing, and the secretary can produce zero in legal services and $20 in typing per hour. The lawyer clearly has an absolute advantage in the production of both legal services and typing, but to produce $30 in income from typing, the lawyer must lose $200 in income from not providing legal services. The opportunity cost of the typing is thus $170. If they both worked for ten hours, with lawyer only doing legal work, their total income would be $2200, but if the lawyer only provided legal services for nine hours and did typing for one hour, the total income would be reduced to $2030.
The theory of comparative advantage provides a powerful argument for free trade among nations. This, and the accompanying prospects for huge increases in profits for some businesses, put great pressure on political leaders to push for the elimination of trade barriers, thus resulting in a high degree of specialization of production by country or region and a proliferation of international trade with supply chains stretching around the world. The immediate benefits were so great that the often serious, but difficult to quantify, negative effects, especially those on the environment, on the standard of living of some less politically-connected groups, and on national security, were frequently overlooked, ignored, or at least trivialized.