What is meant by comparative advantage?

Comparative advantage refers specifically to a situation where an individual, business, or country can produce a good or service at a lower opportunity cost compared to others. This fundamental concept is a key principle in international trade and economics, emphasizing that even if one party is less efficient at producing all goods compared to another, there are still gains to be made from trade if each specializes in producing the goods for which they have a comparative advantage.

For instance, consider two producers: one can produce both cars and computers but is relatively better at producing cars, while the other is more proficient at producing computers. The producer with the comparative advantage in cars can focus on that and trade for computers from the other producer, leading to an overall increase in production efficiency and mutual benefit.

In contrast, the other options delve into different aspects of production but do not accurately define comparative advantage. The highest cost of production pertains more to absolute advantage, producing at a higher rate does not necessarily apply to the comparative costs, and production efficiency alone does not capture the essence of comparing opportunity costs among different producers.