the law of comparative advantage (David Ricardo (even if one nation is…
the law of comparative advantage
what is the basis for trade and what are the gains?
what is the pattern of trade
mercantilists' views on trade
more has to be exported than imported to become a rich and powerful nation. goal is more bullion.
advocated for strict control of economic activity
Adam smith absolute advantage
if two nations trade voluntarily they must both gain.
absolute advantage (better than the other nation at one good and bad at the other, there is a basis for trade)
even if one nation is less efficient at the production of both goods there is sill a basis for mutually beneficent trade
Case of no competitive advantage:
there is still a basis for mutually beneficial trade, useless the absolute disadvantage is in the same proportion
gains from trade
case for advantage with money: (price of labor)
comparative advantage and opportunity costs
competitive advantage and the value theory of labor.
the value of a commodity depends exclusivity on the amount of labor that goes into it.
opportunity cost theory
the opportunity cost is the about of the other commodity that you must give up to release enough resources to produce one additional unit of the first commodity.
the production possibility frontier under constant cost
frontier and the ratio
constant opportunity cost arise when
resources or factors of production are ether perfect substitutes in a fix proportion.
all units of the same factor are homogeneous
opportunity costs and relative commodity prices
the lower the slope the better the competitive advantage.
the basis for and the gains from trade under constant cost
illustration of the gain from trade
empirical tests of the Ricardian model