The Scottish economist David Ricardo had an unusual and non-intuitive insight: Two individuals, firms, or countries could benefit from trading with one another even if one of them was better at everything. Comparative advantage is best seen as an applied opportunity cost: If it has the opportunity to trade, an entity gives up free gains in productivity by not focusing on what it does best. – Shane Parrish
Competing: “An agent has a comparative advantage over another in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade.” – Gabriel Weinberg
Business – Economics: “The theory of comparative advantage is an economic theory about the work gains from trade for individuals, firms, or nations that arise from differences in their factor endowments or technological progress. In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. One does not compare the monetary costs of production or even the resource costs (labor needed per unit of output) of production. Instead, one must compare the opportunity costs of producing goods across countries. The closely related law or principle of comparative advantage holds that under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage.” – Wikipedia (Gabriel Weinberg)
Source:
Shane Parrish’s Farnam Street Mental Model Guide
https://www.farnamstreetblog.com/mental-models/
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Gabriel Weinberg’s Mental Models I Find Repeatedly Useful
https://medium.com/@yegg/mental-models-i-find-repeatedly-useful-936f1cc405d
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James Clear Mental Models Overview
