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2: The Ricardian Theory of Comparative Advantage

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    • Anonymous
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    This chapter presents the first formal model of international trade: the Ricardian model. It is one of the simplest models, and still, by introducing the principle of comparative advantage, it offers some of the most compelling reasons supporting international trade. Readers will learn some of the surprising outcomes of the Ricardian model; for example, less productive nations can benefit from free trade with their more productive neighbors, and very low-wage countries are unlikely to be able to use their production cost advantage in many circumstances. Readers will also learn why so many people, even those who have studied the Ricardian theory, consistently get the results wrong.

    In other words, the Ricardian model is both one of the most misunderstood and one of the most compelling models of international trade.

    This page titled 2: The Ricardian Theory of Comparative Advantage is shared under a CC BY-NC-SA 3.0 license and was authored, remixed, and/or curated by Anonymous.

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