Economics Part B

Table of Contents

Relative Advantage

What is Relative Advantage Definition

Relative Advantage definition is the ability of an entity to produce a product cheaper than another entity, assuming both entities have the same amount of expenses. In other words, given the same amount of inputs, you are still able to produce more products than what another entity is able to produce.

The relative advantage definition is practically applied in Macroeconomics when a country concentrates of producing the goods for which it has a relative advantage, the total overall world production increases and by means of trading with other countries, each country will have more goods, as compared with a situation where each country also produces the products for which it does not have any relative advantage.