Comparative Advantage  Suppose one country is more efficient than another in everything?  There are still global gains to be made if a country specializes in products it produces more efficiently than other products

When there is no trade… Tea (1 ton) Wheat (1 ton) U.S.5 hrs.4 hrs. Sri Lanka 8 hrs.20 hrs. Time required in each country to produce 1 ton of each good Maximum production in 1000 hours of work for each country without trade Tea Wheat U.S. 50 tons 125 tons Sri Lanka 250 tons 200 tons

 Your company has comparative advantage in the product or service where the ratio Cost in your country. Cost in the other country is lowest

How Comparative Advantage works U.S. has absolute advantage in both tea and wheat, but its comparative advantage is in wheat. Sri Lanka has comparative advantage in tea. Tea U.S. 50 tons 125 tons Sri Lanka 250 tons 200 tons Let Sri Lanka specialize in tea – U.S. expands wheat production to replace all Sri Lankan wheat production lost 56 tons 180 tons The U.S. can replace all Sri Lanka’s wheat production and the combined countries have 181 tons of tea instead of 105 tons with no trade.