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:fire:*David Ricardo (1772-1823) *:fire: (Theory of Exchange Value…
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David Ricardo (1772-1823)
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Theory of Comparative Costs
This law has destroyed the merchantilist notion that only export is good for the economy and import is bad
CA says each nation specializes in producing what is good at,in terms of having a lower opportunity cost,and import those goods which expensive for country to produce
So,trade is not zero-sum game. All nations benefit from trade
Theory Of Diminishing Return and Ren
t
Differential Rent 2
Ricardo used Law of Diminshing Return in the most effectively to his analysis determination of rent
Differece between cost and price accrued to owners of land
Difference in fertility that brought about surplus for landowners the return to them ,hence it called differential rent
On intra-marginal land,cost of cultivation per unit of output would be below that price
according Ricardo, lands begin to earn rent when less fertile land is brought under cultivation
Scarcity Rent 1
Rent will be positive even if fertility is uniform if land is scarce
He observed that rent emerged also as cultivation was pushed to 'intensed margin' through more intensive use of land
Differential Rent 1
These land were less fertile in their ability to retain water was limited
Lands were brought under cultivation as long as addition to value of output would cover the cost of cultivation
As most fertile land being used,corn cultivation was moving to land higher up on the slopes
Consequent high price of corn provided the incentive of increased cultivation of corn
Ricardo's idea on rent developed in context of Corn Laws
Scarcity Rent 2
Additional cost of cultivation were less than the addition value of output,more labor and capital woul be applied
This happen until net value of output of last unit of labor and capital hired had fallen to level of incremental cost
Ths is scarcity rent,as against
differential cost
Intensive margin exist even if all land were equal fertility,if land were in scarce supply
Theory of Exchange Value
Utility derive their exchange values from scarcity and quantity of labor
Argues that raw materials and capital goods used up in process of production are embodied labor
This not happen in market economy bcs capital flow toward higher return and therefore equalize
Recognized that differing labor ratio in industries could result in different returns to capital if goods were sold at prices related to labor cost
Ricardo concerned with relative values
Distribution of Income
Wages
Ricardo used the Malthusian Iron Law of wages, which argued that wage would in the long run equal the subsistence wage,which is bare minimum necessary for survival
Profits
calculated as ouput producable on zero-rent land by one workerand one final good minus worker's subsistence wage
If current rate of profit is higher than min rate of profit ,more capital will be accumulated
Profits are main source of capital accumulation
Rent
Ricardo assumed each ladlord hires labor and capital at prevailing market-wide prices for these resources and keeps as rent whatever output is left