According to the law of comparative advantage, actors who have a comparative advantage create more of and consume less of a good. If an agent produces a good at a lower marginal cost before trade, they have a comparative advantage.
In contrast, if an agent produces a good more efficiently or produces more goods for a given amount of resources, they are at a distinct advantage.
In this illustration, if the cost of a doormat rises to 5 hats, Spain will need to make 5 hats in order to obtain 1 doormat. However, Portugal will receive more hats despite manufacturing the same number of doormats as previously.
When used to describe international trade, comparative advantage refers to the products that a country can produce more cheaply or easily than other countries. While this usually illustrates the benefits of trade, some contemporary economists now acknowledge that focusing only on comparative advantages can result in exploitation and depletion of the country's resources.
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