Question

using examples, discuss and illustrate the keystone of information trade, the theory of comparative advantage

Answer 1

In 1817,David Ricardo, an English economist, introduced the theory of comparative advantage which focuses on the relative production differences of two items. He reasoned that even if Country A had the absolute advantage in the production of two products, trade and specialization between two countries could still occur.

David Ricardo developed the classical theory of comparative advantage in 1817 to explain why countries engage in international trade even when one country's workers are more efficient at producing every single good than workers in other countries. He demonstrated that if two countries capable of producing two commodities engage in the free market, then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good, provided that there exist differences in labor productivity between both countries.Widely regarded as one of the most powerful yet counter-intuitive insights in economics, Ricardo's theory implies that comparative advantage rather than absolute advantage is responsible for much of international trade.

Example: A lawyer charges $200 an hour for legal services. The same lawyer can type faster than theadministrative assistant which gets $50 an hour. Should they do both jobs? No, if the lawyer does so, foreach hour they type, they sacrifice $150 had they been administering legal advise. By specializing, eachperson maximizes their overall productivity.

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