文档介绍：Comparative Advantage
Explaining trade: Adam Smith and “Absolute” Advantage
David Ricardo parative Advantage.
Why do nations trade?
“It is the maxim of every prudent master . . . never to make at home what it will cost . . . More to make than to buy”(Adam Smith 1776).
This principle may be generalized or extended to explain why nations trade.
Absolute Advantage
An individual, region, or nation enjoys an absolute advantage in production of a good or service if that person, region, or nation can make the good or service at lower absolute cost—that is, with a lesser expenditure of resources.
For example, Costa Rica may have enjoy an absolute advantage in coffee—and France in pharmaceuticals. Therefore it would be sensible France import coffee from, and export pharmaceuticals to, Costa Rica.
Labor Theory of Value
A ponent of Classical economics.
Labor power as the “source” of all value.
Costs or production reducible to labor cost
Labor productivity
Absolute advantage can be found paring labor productivity in various activities (coffee, pharmaceuticals, machinery, . . .)
Let Q be output (measured in units); N is worker hours; Pr is labor productivity.
Comparing Labor Productivity—United States versus the Rest of the World
Note: Hours per unit is the reciprocal of labor productivity
We are assuming the cost of an hour of labor is the same worldwide. The . thus enjoys the absolute advantage in wheat. The rest of the world has the absolute advantage in cloth.
Specialization according to absolute advantage
We can show that global production efficiency is improved when production follows absolute advantage
Ricardo’s theory of trade
Ricardo’s contribution was to demonstrate—using a simple 2 country, modity model—that countries gain from trade even when one country has an absolute advantage in modities.
Ricardo’s Theory of Trade
Comparative advantage
A country will export products that it can produce at a low opportunity cost (in terms of other goods th