David Ricardo and Comparative Advantage

This section presents the theory of comparative advantage developed by David Ricardo. The theory of relative advantage essentially explains the emergence of the principles of specialisation and economies of scale and the benefits of their application. The theory described in the chapter laid the foundations for the development of opportunity cost theory. For example, textiles, manufacturing, or other industries can be developed in any country, regardless of climate or geology.

Ex. 1‑9 Example of absolute and comparative advantage in cloth and tomatoes trade

Keywords: tomato, cloths, trade

Ex. 1‑10 Modern countries that are leading the way in semiconductor production

Keywords: Semiconductors, USA, Japan, South Korea, Taiwan

Ex. 1‑11 The money factor in comparative advantage

Keywords: Money, costs

Ex. 1‑12 Limitations of David Ricardo’s theory

Keywords: Limitations, value of labour, trade, production

Ex. 1‑13 David Ricardo’s period of work in the context of other significant events

Keywords: French revolution, comparative advantage, Adam Smith, David Ricardo

David Ricardo’s (1772-1823) The Period of Political Economy and Fiscal Principles was published 40 years after Adam Smith.  In addition to the theory which has been applied to international business, David Ricardo is also known for (1) the theory of reward and profit, (2) the labour theory of value, and (3) the theory of rent and the law of diminishing marginal returns.

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