The Concept of Comparative Advantage as a Milestone of Human Search for the Most Rational Means of Production Free Essay Example, 2500 words

Ricardian Model of Comparative Advantage is constructed in such a way that the difference between the trading countries is in their production technologies only. All other features are assumed identical across countries in the model. Since trade would occur and be advantageous, the model highlights one of the main reasons why countries trade, that is, the dissimilarity in their technology. Moreover, the gains of trade will still accrue to both trading countries even when a country has no absolute advantage whatsoever . Given that an unequal distribution of factors of production across all economies, these economies will have comparative advantages and disadvantages in production. Secondly, despite the fact that most models on trade conclude that some parties would benefit and some lose from free trade, the Ricardian model shows that everyone could benefit from it. However, a reason for this result is the model s simplifying assumption that there is only one factor of production. Al so, Ricardo showed by using a simple numerical example that even a technologically inferior country can benefit from free trade. That is, technological superiority is not enough to guarantee continued production of a good in free trade. We will write a custom essay sample on The Concept of Comparative Advantage as a Milestone of Human Search for the Most Rational Means of Production or any topic specifically for you Only $17.96 $11.86/page