Q. Consider the following statements regarding the Comparative Advantage:
1. It refers to easy control of Inflation by an economy.
2. It is a foundational principle in the theory of international trade.
3. The law of Comparative Advantage was propounded by John Nash.
Which of the statements given above is/are correct?

[A] 1 only

[B] 2 only

[C] 2 and 3 only

[D] 1, 2 and 3

Answer: B

Comparative advantage is an economic term that refers to an economy’s ability to produce goods and services at a lower opportunity cost than that of trade partners.  

  • A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins. 
  • The law of comparative advantage is popularly attributed to English political economist David Ricardo and his book “On the Principles of Political Economy and Taxation” in 1817, although it is likely that Ricardo’s mentor James Mill originated the analysis. 
  • One of the most important concepts in economic theory, comparative advantage is a fundamental tenet of the argument that all actors, at all times, can mutually benefit from cooperation and voluntary trade. It is also a foundational principle in the theory of international trade. 

Source: TMH Ramesh Singh