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Comparative advantage is a condition of a producer where it is better suited for production of one good than another good. Good A can be produced more efficiently than good B, for example. This comparison is done in terms of opportunity costs of each good, not in terms of pure production costs. Opportunity cost is how much you can produce of the good B with the same amount of labor, capital, and other resources that it takes to produce one of good A. This is the tradeoff- how much of good B must be sacrificed in order to get one more of good A.  An example is in order.

### Example: Countries A & B

Consider two countries: Country A and Country B. Their economies consist entirely of guns and butter. Country A has an absolute advantage in the production of both goods, seeing as they can produce both more efficiently than Country B. Country A is thereby able to produce more of both goods. This is reflected on their production possibilities frontiers, where each country can either produce all guns or all butter or some combination of the two goods. This curve reflects their differing opportunity costs for each country. This is the tradeoff that occurs when you produce one good, and you can't use those same resources to produce a certain amount of another good.  This cost is usually measured in terms of how much it costs to produce each product, or just the labor costs that it takes. To simplify it in this case, let's measure opportunity cost in the terms of how much of the other good is given up. The following table shows the individual production possibilities of country A and country B assuming autarky , or no trade at all. All of these tables assume daily production limits.

 Guns per day Butter per day Country A 50 100 Country B 25 5

This is an either/or production, in that either Country A can produce 50 guns in a day or it can produce 100 pounds of butter in a day. But this isn't the only option for A, as they can also produce any mix of the two goods that still has the same proportion. For instance, Country A could produce  as each of these good mixes represent the same tradeoff.  But the numbers in the table represent the highest production combinations by one country. As you can see in the following tables, any other combination would result in each country producing less efficiently by not focusing on their most productive good.

Country A

 % of Resources Devoted to Gun Production Guns Butter 100% 50 0 80 40 20 60 30 40 40 20 60 20 10 80 0 0 100

Country B

 % of Resources Devoted to Gun Production Guns Butter 100% 25 0 80 20 1 60 15 2 40 10 3 20 5 4 0 0 5

In order to determine if comparative advantages exist between the two countries, you have to figure out the opportunity cost of making one unit of one of the items.  For Country A, for every 1 gun that they make they have to give up 2 lbs. of butter.  And for every pound of butter that Country A produces they must give up 1/2 of a gun.  For Country B, in order to make 1 gun they must give up the production of 1/5 lbs. of butter.  And for every pound of butter they produce, they must give up on producing 5 guns.  From this we can see that Country A has a comparative advantage in the production of butter and Country B has a comparative advantage in producing guns.  Their opportunity costs are lower for each of these products relative to one another, and so there is potential for beneficial trade.