A Shift in Comparative Advantage?

Roger White

Chapter Chapter 3 in Making Sense of Anti-trade Sentiment, 2014, pp 37-57 from Palgrave Macmillan

Abstract: Abstract David Ricardo’s (1817) example of comparative advantage illustrates the basis for mutually beneficial exchange. The Ricardian framework is intuitive when we consider how we conduct our daily lives. We do not produce the large majority of items that we consume. Instead, our productive efforts are, quite often, specific to a particular product. Often, this is a good or service that we rarely, if ever, consume. Effectively, as individuals, we exploit our comparative advantages by specializing in the production of a good or service (or a narrow range of goods and/or services) for which we are most productive. We then utilize the compensation we receive from providing these products to acquire the goods and services that we are relatively less adept at producing. Similarly, Ricardo’s example ends with Britain producing cloth, which is then exported to Portugal in exchange for port wine. The result of the countries’ specialization in production and the subsequent exchange is that the populations of both countries can collectively consume more cloth and more port wine than if they chose not to specialize in what they do relatively well and then trade for the items they are relatively poor at producing.

Keywords: Gross Domestic Product; Labor Supply; Home Country; Capital Stock; Comparative Advantage (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-37325-0_3

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DOI: 10.1057/9781137373250_3

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