Comparative Advantage
The most basic concept in the whole of international trade theory is the principle of comparative advantage, first introduced by David Ricardo in 1817. It remains a major influence on much international trade policy and is therefore important in understanding the modern global economy. The principle of comparative advantage states that a country should specialise in producing and exporting those products in which is has a comparative, or relative cost, advantage compared with other countries and should import those goods in which it has a comparative disadvantage. Out of such specialisation, it is argued, will accrue greater benefit for all.
In this theory there are several assumptions that limit the real-world application. The assumption that countries are driven only by the maximisation of production and consumption, and not by issues out of concern for workers or consumers is a mistake.