The Comparative Advantage Gains from Trade

4 April 2015
Discusses comparative trade theory, wherein nations assess their production strengths & weaknesses & create trade pacts that serve each accordingly.

The Comparative Advantage Gains from Trade
Introduction
It is important to not confuse the terms comparative and competitive as they apply to the goals and ideals of world trade. Kennedy and Koelim (1996) find that despite this wide acceptance in the professional community, the basics of international trade are still poorly understood by many policy makers and casual commentators (1). The comparative advantage theory has been a part of international economic studies since it was created by David Ricardo, an economist who lived in the 17th century.

Ricardo’s theory was that each nation has good points and bad points in its economy. In the classic example of two countries, Ricardo sets up a model where Germany and France only..

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