comparative advantage Essay

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     The theory of comparative advantage is perhaps the most important concept in international trade theory. As the economies that exist in our world our becoming increasingly more intertwined, it is becoming even more important. Nearly every country in the world depends on other countries to supply them with goods that they cannot produce in their own country. I believe that comparative in necessary in today’s economy. In this paper I am going to discuss comparative advantage and it’s effect on globalization.
     The idea of comparative advantage dates back to the early 19th century. The model that is used to describe the theory is known as the “Ricardian Model”. David Ricardo believed
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“If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage”(BookIV, Sectionii, 12). In other words if country can import a good at a lower then it would cost to produce, the country should import the good. Comparative advantage and advantageous advantage do not contradict each other. Both theories are based on the same principle. Free trade is a very important principle in both theories. In the example using Portugal and England both countries would benefit from free trade.
     The primary issue in the model by Ricardo is what happens when each country moves from autarky (no trade) to free trade with the other country. What are the consequences from trade going to be? The most important things that we care about are trade’s effects on the prices the goods in each country, the production level of the goods, employment levels in each industry, the pattern of trade, consumption levels, wages and incomes, and the welfare effects.
     Using Ricardo’s model it shows that in autarky, each country will produce some of each good. Because of technology differences, relative prices of the two goods will differ between countries. Workers in the technologically advanced country will enjoy a higher standard of living than in the technologically inferior country. The reason

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