The principle of comparative advantage indicates that mutually beneficial international trade can take place only when:

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The principle of comparative advantage states that it is beneficial for countries to specialize in producing goods and services that they have a relatively lower opportunity cost in producing compared to other countries. This means that countries should produce goods for which they have a comparative advantage, and trade with other countries for goods and services that they are less efficient in producing themselves. This trade can take place only when there are differences in the relative costs of production between nations. Tariffs and transportation costs can affect the terms of trade, but they are not the necessary conditions for mutually beneficial international trade to occur. The fact that a country can produce more of a product than others do not necessarily determine its comparative advantage, as it must be assessed in terms of relative opportunity costs of production.

The Principle of Comparative Advantage Indicates That Mutually Beneficial International