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    Adam Smith'S Example Absolute Advantage: Mcgraw-Hill/Irwin © 2007 The Mcgraw-Hill Companies, Inc., All Rights Reserved

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    Toulouse18
    The document discusses David Ricardo's theory of comparative advantage. It explains that Ricardo focused on labor productivity and opportunity costs in determining what products a country should export and import. Specifically, a country will export goods it can produce at a lower opportunity cost and import goods that are more costly to produce domestically based on relative labor productivity between countries. The example of England and Portugal producing wine and cloth is provided to illustrate comparative advantage.

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    Adam Smith'S Example Absolute Advantage: Mcgraw-Hill/Irwin © 2007 The Mcgraw-Hill Companies, Inc., All Rights Reserved

    Uploaded by

    Toulouse18
    35 views6 pages
    The document discusses David Ricardo's theory of comparative advantage. It explains that Ricardo focused on labor productivity and opportunity costs in determining what products a country should export and import. Specifically, a country will export goods it can produce at a lower opportunity cost and import goods that are more costly to produce domestically based on relative labor productivity between countries. The example of England and Portugal producing wine and cloth is provided to illustrate comparative advantage.

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    The document discusses David Ricardo's theory of comparative advantage. It explains that Ricardo focused on labor productivity and opportunity costs in determining what products a country should export and import. Specifically, a country will export goods it can produce at a lower opportunity cost and import goods that are more costly to produce domestically based on relative labor productivity between countries. The example of England and Portugal producing wine and cloth is provided to illustrate comparative advantage.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    35 views6 pages

    Adam Smith'S Example Absolute Advantage: Mcgraw-Hill/Irwin © 2007 The Mcgraw-Hill Companies, Inc., All Rights Reserved

    Uploaded by

    Toulouse18
    The document discusses David Ricardo's theory of comparative advantage. It explains that Ricardo focused on labor productivity and opportunity costs in determining what products a country should export and import. Specifically, a country will export goods it can produce at a lower opportunity cost and import goods that are more costly to produce domestically based on relative labor productivity between countries. The example of England and Portugal producing wine and cloth is provided to illustrate comparative advantage.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    Adam Smith’s Example

    Absolute Advantage

    McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Ricardo’s Theory of Trade
     Ricardo focused on labor productivity (or
    resource productivity more generally) for
    different products in different countries.
     Comparative advantage
     A country will export products that it can produce
    at a low opportunity cost (in terms of other
    goods that could be produced within the
    country).
     A country will import products that it would
    otherwise produce at a high opportunity cost.
     Basis for trade: Relative differences in labor
    (resource) productivity.

    McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Ricardo’s Example:
    Comparative Advantage

    McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Ricardo’s Example:
    No-Trade Relative Prices

    McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Figure 3.1 – The Gains from Trade, Shown
    for Ricardo’s Constant-Cost Case

    McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Absolute Advantage Does Matter
    for Wage Rates

    McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

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