Which economic theory, formulated by David Ricardo, states that international trade can benefit two countries even if one country is less efficient in producing all goods?

💡 Solution & Explanation

David Ricardo formulated the Theory of Comparative Advantage in his 1817 treatise, establishing that international trade remains mutually advantageous even if one nation holds an absolute disadvantage in producing all goods. The alternative absolute advantage theory was proposed earlier by Adam Smith, focusing purely on cost superiority. Comparative advantage relies fundamentally on the principle of opportunity cost differences between trading nations. International trade theories are core concepts examined in economic development and trade papers.