How does Ricardo explain Comparative Advantage?
What happened to Ed´s grandchild before trade?
What happened to Ed´s grandchild after trade?
1)Ricardo explains Comparative Advantage in “The Choice” as followed: Dave gives “The Theory of Comparative Advantage” a different name and calls it “The Roundabout Way to Wealth”.(p.10) He says that this theory deals with the idea that even a nation which is relatively poor at doing everything, still do some things relatively well. “And a nation that is really good at many things should still specialize in producing some items and import the rest”.(p.10) Time is the ultimate scarce resource. Investing time in doing something means having less time in doing something else. If somebody is good at making pharmaceuticals, and somebody else better at making televisions, each should stay with his comparative advantage and get the other good on the roundabout way. “That way you get more televisions than you would have by trying to make them directly”.(p.11) Also if someone can make something you need for less than it costs to make it yourself, you should trade rather than making it yourself.(p.34) Therefore you can purchase goods cheaper and are able to spend the additional money elsewhere. A farmer for example who makes his own shirts looks to be richer because he is keeping them within his household. But in reality he is poorer. “Because he fails to concentrate on making food, he becomes a poorer farmer”.(p.47) While the farmer is making his own shirt “he is giving up time and skills better spent at farming.”(p.47) It is very important to know that poor nations benefit from trade. Dave tells us to use our resources wisely. “Using your resources wisely means giving the people the incentive to work hard, to innovate, and to take risks.”(p.98) Every nation should open its markets of trade to allow its people “to leverage the skills of people in other nations.”(p.98)
2) Ed´s grandchild...
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