Final answer:
Comparative advantage is about producing goods at a lower opportunity cost, allowing for specialization and increased global production. This concept explains why countries benefit from trade by focusing on their strengths, leading to gains from trade.
Step-by-step explanation:
The concept of comparative advantage is central to understanding the benefits of trade and the role of specialization. Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country, even if it does not have an absolute advantage in producing that good. When each country specializes in the goods for which it holds a comparative advantage and then trades with others, total global production and consumption can increase, leading to gains from trade for all parties involved.
David Ricardo's theory of comparative advantage suggests that as countries specialize based on their comparative advantages, they become more efficient, leading to an increase in total global output. This specialization and increased production then translate into benefits from trade, which are enjoyed by both producers and consumers. This economic theory underlines the importance of trade as a vehicle for countries to capitalize on their specializations and improve overall welfare.