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What is David Ricardo's comparative cost theory of international trade?
Wiki User
∙ 13y ago
The theory states that even if a country can produce both commodities more than the other there is still the need to specialze in the production of a particular commodity of which she has the lowest cost advantage and exchange it for the other, for trade between countries to be mutually benefitial."all things being equal".
ASSUMPTIONS:
1- there are only two countries in the world.
2- there are only two commodities.
3- trade between two nations are not restricted.
by; ICE
Wiki User
∙ 13y ago
Wiki User
∙ 7y agoComparative advantage exists when a country has a margin of superiority in the production of a good or service i.e. where the opportunity cost of production is lower.
- Comparative Advantage
• A nation having absolute disadvantages in the production of two goods with respect to another nation has a comparative or relative advantage in the production of the good in which its absolute disadvantage is less
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What is the implication for free trade of the theory of comparative advantage?
Under the theory of comparative advantage two nations that each have a cost advantage in the production of a specific product would both benefit from free trade by selling to each other since the total output of both nation's products sold would increase. The mathematical theory of comparative advantage was formalized by David Ricardo in 1817 and hence became known as the "Ricardian model." Economists have long debated the usefulness of the comparative advantage model in the real world since it is counter-intuitive to many people due to the fact that the model is based on two countries producing only two goods and only one factor of production (such as labor). In addition, the model computes comparative cost advantages based on which nation produces goods at a lower opportunity cost which implies that a nation would have to forgo the production of other goods in order to achieve the lowest comparative advantage. Many economists and student of foreign trade prefer to use the theory of absolute advantage in production which is easy to understand since it is intuitive. Under the absolute advantage theory two countries that each produce a particular good at a much lower cost than the other would both become wealthier as they increased production to sell their goods to each other.
David Ricardo's theory called the Iron Law of Wages came to be called?
David Ricardo's theory called the Iron Law of Wages came to be called the Theory of Efficiency of Wages. The Iron Law of Wages says that the worker is going to be paid the minimum wage needed to survive.
David ricardo developed his economic theory as a reaction to whos writing?
Adam smith
A banker and a member of Britain's parliament who developed the iron law of wages and introduced the idea of comparative advantage in Principles of Political Economy and Taxation?
Your Answer: David Ricardo Correct
What kind of science did david ricardo's theory called the iron law wages come to be called?
DISMAL
What has the author J David Richardson written?
J. David Richardson has written: 'Global Forces, American Faces' 'Revealing comparative advantage' -- subject(s): Econometric models, Comparative advantage (International trade), Commerce 'Understanding international economics' -- subject(s): International economic relations, International trade 'Empirical research on trade liberalisation with imperfect competition' -- subject(s): Commercial policy, International economic relations 'Empirical research on trade liberalization with imperfect competition' -- subject(s): Commercial policy, Competition, International, Econometric models, International Competition 'New Trade Theory and Policy a Decade Old'
Who developed the law of comparative advantages?
David Ricardo first promoted the theory in his 1817 book On the Principles of Political Economy and Taxation.
Which of these was developed by David Ricardo?
law of comparative costs
What has the author Jerome David Frank written?
Jerome David Frank is an American author who is best known for his 1959 book "Persuasion and Healing: A Comparative Study of Psychotherapy." This work explores the effectiveness of various types of psychotherapy and the role of persuasion in the healing process.
What are the main ideas of David Ricardo?
international trade Ricardo's theory on international trade focused on comparative costs and looked at how a country could gain from trade when it had relatively lower costs (i.e. a comparative advantage). The original example focused on the trade in wine and cloth between England and Portugal. Ricardo showed that if one country produced a good at a lower opportunity cost than another country, then it should specialise in that good. The other country would therefore specialise in the other good, and the two countries could then trade.
What has the author Hyacinth Singharayar David written?
Hyacinth Singharayar David has written: 'An introduction in English to the Etymological and comparative lexicon' -- subject(s): Comparative Grammar, Sinhalese, Sinhalese language, Tamil, Tamil language
Who studied the comparative Aerodynamics of javelins and hammers in computer science?
David Blei
Which computer scientist studied the comparative aerodynamics of hammers and javelins?
David Blei
What has the author David Joyner written?
David Joyner has written: 'Coding Theory and Cryptography' 'Selected unsolved problems in coding theory' -- subject(s): Coding theory
How far is it from Ben Gurion Airport to international David hotel?
Ben Gurion International Airport is situated nine miles away from International David hotel.
What has the author David D Driscoll written?
David D. Driscoll has written: 'What is the international monetary fund?' -- subject(s): International Monetary Fund, International finance
What has the author David G LeMarquand written?
David G. LeMarquand has written: 'International rivers' -- subject(s): International rivers
