Advantages Of Ricardia

Satisfactory Essays
Comparative Advantage:
Comparative advantage is a condition when country can produce goods with lower opportunity costs compare with other countries. Opportunity costs here means the costs that we choose over other things (we gave up on other goods and spend cost for goods that gives more benefit). For example: Indonesia import some machine from China because China offer lower price rather than if Indonesia want to produce it in Indonesia. Because if Indonesia lack of raw materials and knowledge, but Indonesia is good at producing spices. So the opportunity costs of Indonesia is by allocating costs for producing machine to producing spices and sell it to China. And Indonesia also has comparative advantage of spices because the availability of resources that make the costs can be lower.
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Countries sometimes protects industries from foreign competition. It is costly to transport goods and services.
Transportation costs can reduced the gaining from trade, because it will affect the price (the price will be higher) and it also risky sometimes. The affect of transportation costs will make goods become non-traded goods because country thinks that it is better to produce it rather than buy it from foreign with high transport costs. Other non-traded goods is services etc.

Empirical evidence of the Ricardian Model:
There are numbers of way which Ricardian model makes misleading predictions. First Ricardian model is a simple model that predicts an extreme degree of specialization that we not observed in real world. Second, it assumes away effects of international trade on the distribution of income within country thus it makes a prediction that country will always gain from trade. Third, the cause of trade missing an important aspect of trading system. So, some of theory in Ricardian model is unrealistic but its basic prediction has been confirmed by numbers of
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