Smith, Malthus, Ricardo and Mill are famous economists in United Kingdom during eighteenth century and nineteenth century. The heritage and development of classical economics were well demonstrated through their concepts. Mill was born in 1806, as a junior, many of his viewpoints based on the theories by his predecessors: Smith, Malthus and Ricardo. However, there are still some differences between their perspectives. This essay will research on international trade and government. In the international trade, Mill put forward the principle of reciprocal demand. The theory gave an explanation on trade gains and the importance of demand in exchange rate determination. The main point is whether the trade between two countries will happen or not depends on the relative demand intensity of commodities among two or more than two trading countries. It is generated by Ricardo’s comparative advantage concepts that a country is necessary to take part in free trade even in its absolute predominance of two productions, when comparing with other countries, as long as a country’s comparative costs differentiate those of others. This distinction gives comparative advantage to every country; they will gain profits from exchanging. It is a simple example showing in the table below.
In china, 10 tons of rice can exchange 15 tons of wheat, however, in America it equals to 20 tons of wheat. Wheat is cheaper in America. In the other hand, 15 tons of wheat can swap 10 tons of rice in china while 20 tons of wheat is equal to 10 tons of rice. Rice is cheaper in China. These two countries both have comparative advantages in trading although china is disadvantaged in rice and wheat production. As a result, China exports rice when imports wheat and America exports wheat while imports rice. This exchange will happen when the exchange rate is between 1/1.5 and 1/2; if not there will be the situation that one country...
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