The 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. Comparative advantage is the economic reality describing the work gains from trade for individuals, firms, or nations, which 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.

For example, if Country A can produce one unit of Product 1 or 4 units of Product 2, and Country B can produce 0.5 units of Product 1 or 1 unit of Product 2,

Country A has a Comparative Advantage in producing Product 2, since it is 4 times better than Country B, in producing Product 2, and only 2 times better in producing Product 2