Economic Developemt

Economic Development 1

The principle of comparative advantage was brought to prominence by a British classical economist called David Ricardo (1772-1823 . In his theory of comparative costs , Ricardo pointed out that countries always specialize and trade in goods which they hold a comparative advantage To understand comparative advantage better it is also important to understand the concept of absolute advantage . A country with absolute advantage is one that produces more goods and services than its trading partners with the same of resources , or the same quantity of a good or service

with fewer resources . This in essence means that countries with absolute advantage have the upper hand over the countries she trades with

Comparative advantage however points out that with specialization and trade even a country that has absolute disadvantage , so to speak , can still enjoy the same benefits as a country that has resources . A country has comparative advantage if it able to produce goods and services at a lower opportunity cost than its trading partners . Countries that are inefficient at producing anything when compared to their trading partners are urged to specialize in the production of that good it is least inefficient at , in relation to other goods . In explaining this theory , Ricardo used the example of Portugal and England in their trading of wine and cloth . It is possible to produce both cloth and wine with less labor than it is in England . In England it is somewhat easy to produce cloth but very difficult to produce...