David Ricardo's The Principle Of Political Economy And Taxation

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One of the founders of modern economics was David Ricardo who developed the concept of the comparative advantage of trade. This concept is a part of the classical theory of trade and was published in 1817 in David Ricardo’s book entitled the Principles of Political Economy and Taxation (Appleyard & Field, 2014, p. 30). This paper will address the effectiveness of this concept as it has been applied to real-world international trade after the General Agreement in Trade and Tariffs (GATT) was signed in 1947. How the level of wages, productivity and exchange rates affect the model of comparative advantage and international trade patterns will also be analyzed in this document. Ricardian Comparative Advantage of Trade Theory David Ricardo developed this concept after he read the work of Adam Smith who is considered another founder of modern economics. Adam Smith created the concept of absolute advantage which is an idea that a countries should specialize in one commodity. They should export those commodities and should trade with a partner country, which have a specialization in other commodities. The foundation of Adam Smith’s theory is based on the labor hours of a country to produce goods. The labor theory of value reviews how many hours it takes a country to produce a particular commodity and determines which commodity the country has the most productivity benefit. The item that has the lowest cost to produce should be the item that they specialize in making and
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