A discussion of an important concept in international trade theory known as comparative advantage.
Written in 2005; 1,509 words; 2 sources; APA; $ 49.95
Paper Summary:
In this paper, the author explains what is meant by comparative advantage and underlines its importance. The paper also discusses how the concept differs from the related concept of absolute advantage and describes, with the help of an example, why comparative advantage may prove beneficial for individuals, as well as countries. In the end, the author briefly reviews how the Ricardian model of comparative advantage applies to the real world situation.
From the Paper:
"Comparative advantage is an economics theory which explains why it can be beneficial for two individuals or countries to trade, despite the fact that one of them may be able to produce each item more cheaply than the other. In other words, what is of critical importance in the viability of trade is not the absolute cost of production, but rather the ratio between how easily the two individuals (or countries) can produce different kinds of things. According to the theory of comparative advantage, the total output will be increased if people and nations engage in those activities for which their advantages over others are the largest or their disadvantages are the smallest."
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