Individuals, businesses, and countries differ in their productive capabilities. These differences typically arise from differences in available resources, training and experience, giving rise to comparative advantages. A comparative advantage exists when two producers have different opportunity costs.

It is the existence of comparative advantage that gives rise to gains from trade. Even if one country, business, or individual is more efficient at producing every single good and service (known as an absolute advantage), so long as there are differences in opportunity costs between potential trading partners, both can benefit from trade.