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Does the theory of comparative advantage make a convincing case for free trade?
ECOP1003 - International Economy and Finance
4 Pages • Essays / Projects • Year: Pre-2018
In the Principles of Political Economy and Taxation wrote by David Ricardo in 1817, it emphasises that the key of international trade is comparative advantage, where a country has the ability to produce products at a lower opportunity cost than other countries, which means that they are relatively more efficient at producing that products. Later scholar Ricardo further advanced his idea with the reasoning that if one country specialises in producing products that are most efficient and engage in trade with other trading partners that are also producing their most efficient products, then both countries will be better off. The idea of comparative advantage points out reasons for free trade but there are a number of significant limitations in its real practice. This essay will look at some of the limitations such as demand, specialisation and perfect competition and explore why some countries still support free trade by the idea of comparative advantage.
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