The Consequences of the Industrial Revolution in Great Britain (the Standard of Living Debate) and the Free Trade Era in Europe.

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Lecture 11: The Consequences of the Industrial Revolution in Great Britain (The Standard of Living Debate) and the Free Trade Era in Europe.

I. The Consequences of the Industrial Revolution: The Standard of Living Debate. What happened to living standards during the Industrial Revolution? From today’s perspective, over 200 years later, most people would say that industrialization has raised living standards dramatically from those that prevailed in the 1700s. In fact, there is general agreement among scholars that from 1850 forward, the standard of living in the West improved. The debate centers on what happened between 1760 and 1850.

Positive Negative Higher wages due to Displacement of higher productivity
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A. Ricardo and comparative advantage. Suppose there are only two countries, Portugal and England and two goods, wine and corn. The following table provides the yield per acre for each good in each country:
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Portugal England

Wine 30 jugs 15 jugs Corn 60 bushels 45 bushels

1. Portugal can produce more of both goods per acre than can England. So Portugal has the absolute advantage in both goods: for a given amount of inputs, Portugal can achieve higher output in wine (or corn) than can England. 2. Comparative advantage is determined by the “price” of one good in terms of the other good within each country. 3. Law of comparative advantage: A country in its trade with another country will export the good at which it has a comparative advantage in producing and import the good in which it has a comparative disadvantage in producing. By trading along the lines of comparative advantage, both countries can experience tgains. So by trading with each other, both countries are able to push out their consumption frontiers. The aggregate consumption of both goods can increase.

B. Where does a country’s comparative advantage come from?

1. Technology differences. For the most part technology will diffuse across national

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