scroll to top
Stuck on your essay?
Get ideas from this essay and see how your work stacks up
Word Count: 1,070
David Ricardo developed the principle of comparative advantage Heckscher Ohlin and Samuelson then later developed the theory They all argued that all countries have different factor endowments of labour land and capital inputs Countries should be able to specialise in and export products that they can effectively produce Comparative advantage dictates that international trade happens when there are differences in the price of production World trade is the result of non-price competition between countries The gains of specialisation depend on comparative advantage World production can always be increased if trade takes place between countries which have different relative efficiencies in the production of any goods or services If each concentrates on those commodities in which it is relatively more efficient or relatively less inefficient a gain is there for the taking Without comparative advantage there is no reallocation of resources within countries that will increase total world production Below is a table to demonstrate comparative advantage before specialisation has taken place Pre-SpecialisationCD PlayersPersonal Computers UK2000500 Japan40002000 Total Output60002500 To decide which country should specialise in a particular product we need to look at the information in the table above and analyse the internal opportunity cost for each country For example if the UK were to put more resources into higher output of personal computers the opportunity cost of each extra PC would be four CD players Japan has the same decision to make as the opportunity cost would be two CD Players It is therefore clear that Japan has the comparative advantage in PCs If Japan reallocated its resources into CD players the opportunity cost of one extra CD player is of a PC For the UK the opportunity cost is of the PC So the UK has the comparative advantage in CD players Below is a table to show comparative advantage after specialisation has taken place After SpecialisationCD PlayersPersonal Computers UK40000 Japan44002800 Total Output64002800 For a mutually beneficial trade to take place
@Kibin is a lifesaver for my essay right now!!
- Sandra Slivka, student @ UC Berkeley
Wow, this is the best essay help I've ever received!
- Camvu Pham, student @ U of M
If I'd known about @Kibin in college, I would have gotten much more sleep
- Jen Soust, alumni @ UCLA