Free trade is based on the principle of comparative advantage. This principle states that countries should specialize in producing goods in which they have a lower opportunity cost and trade with other countries to acquire goods that have a higher opportunity cost. This principle was first introduced by David Ricardo in his book "On the Principles of Political Economy and Taxation" in 1817.

Explanation:
• Comparative advantage is the ability of a country to produce a good at a lower opportunity cost than another country.
• Opportunity cost is the cost of producing one good in terms of the forgone production of another good.
• A country should specialize in producing goods in which it has a lower opportunity cost and trade with other countries to acquire goods that have a higher opportunity cost.
• Specialization leads to increased efficiency and productivity, which results in lower costs and higher output.
• Free trade promotes the efficient allocation of resources and increases economic welfare.

Example:
• Suppose that Country A can produce 1 unit of wheat with 2 units of labor and 1 unit of cloth with 4 units of labor, while Country B can produce 1 unit of wheat with 3 units of labor and 1 unit of cloth with 6 units of labor.
• Country A has a comparative advantage in producing wheat because it has a lower opportunity cost (2 units of labor) compared to Country B (3 units of labor).
• Country B has a comparative advantage in producing cloth because it has a lower opportunity cost (6 units of labor) compared to Country A (4 units of labor).
• If both countries specialize in producing the good in which they have a comparative advantage and trade with each other, they can increase their consumption of both goods and achieve a higher level of economic welfare.

Conclusion:
• Free trade based on the principle of comparative advantage promotes specialization, efficiency, and productivity.
• Specialization leads to lower costs, higher output, and increased economic welfare.
• Countries should specialize in producing goods in which they have a comparative advantage and trade with other countries to acquire goods in which they have a higher opportunity cost.