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Theory of Comparative Advantage - Essay Example

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Finance & Accounting
Pages 10 (2510 words)


Running head: Theory of Comparative Advantage Theory of Comparative Advantage Insert Name Insert Insert 27 March 2012 Theory of Comparative Advantage Introduction Before Ricardo developed the theory of comparative advantage, the economics world had utilised the theory of absolute advantage…

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Theory of Comparative Advantage

In turn, the countries would have an opportunity to import goods from the country that had an absolute advantage in those goods (Hall and Lieberman 2007). However, in 1817, David Ricardo disputed the postulation of absolute advantage and instead developed and enhanced the claim of comparative advantage (Hall and Lieberman 2007). According to the author, a country obtains comparative advantage if it possesses the ability to produce a particular good and be able to produce the good at lower opportunity than some other country (Carbaugh 2010). Initially, absolute advantage talked and fore so, resources as key to obtaining absolute advantage in production of goods, comparative advantage on the other hand regards opportunity cost as key in production of goods. For instance, Ricardo postulates that , a likely potential trading partner may be perceived to be absolutely inferior in the production of every single good, where more resources per unit of each good may be required than any other country and still have a comparative advantage in some good (Hall and Lieberman 2007; Maneschi 1998). The comparative advantage comes about because the country is inferior at producing some goods than others (Misra and Yadav 2009). ...
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