Vivid example of the Ricardian Law of Comparative Advantage is Today’s Market
- Víctor M. Gaud Cabrera
- Jan 10, 2019
- 3 min read
Updated: Aug 10, 2019
David Ricardo was an English economist born in April 1772 and died September 1823. Ricardo has been granted a vital contribution to economic though and to the case for freedom of trade with the law of comparative advantage.
Ricardian Law of Comparative Advantage
The Mises Daily Articles have a great summary for this:
“The law of comparative advantage tackles such hard cases and is therefore indispensable to the case for free trade. It shows that even if, for example, Country A is more efficient than Country B at producing both commodities X and Y, it will pay the citizens of Country A to specialize in producing X, which it is most best at producing, and buy all of commodity Y from Country B, which it is better at producing but does not have as great a comparative advantage as in making commodity X. In other words, each country should produce not just what it has an absolute advantage in making, but what it is most best at, or even least worst at, i.e. what it has a comparative advantage in producing.
If, then, the government of Country A imposes a protective tariff on imports of commodity Y, and it forcibly maintains an industry producing that commodity, this special privilege will injure the consumers in Country A as well as obviously injuring the people in Country B. For Country A, as well as the rest of the world, loses the advantage of specializing in the production of what it is most best at, since many of its scarce resources are compulsorily and inefficiently tied up in the production of commodity Y. The law of comparative advantage highlights the important fact that a protective tariff in Country A wreaks injury on the efficient industries in that country, and the consumers in that country, as well as on Country B and the rest of the world.
Another implication of the law of comparative advantage is that no country or region of the earth is going to be left out of the international division of labor under free trade. For the law means that even if a country is in such poor shape that it has no absolute advantage in producing anything, it still pays for its trading partners, the people of other countries, to allow it to produce what it is least worst at.
In this way, the citizens of every country benefit from international trade. No country is too poor or inefficient to be left out of international trade, and everyone benefits from countries specializing in what they are most best or least bad at — in other words, in whatever they have a comparative advantage.” (https://mises.org/library/ricardian-law-comparative-advantage)
Vivid Example
The World Economic forum wrote on March 19, 2018 that “the openings of global market allow almost all nations in the planet to trade with one another without too many barriers”. In this article the author Andres P. Mohorte presents various maps in which you can see geographically the industries in which the regions specialize and are top exporters.
This is the example of the Ricardian Law of Comparative Advantage countries specializing and interacting freely for a mutual benefit as you can see their top export product, but, they also have a top import product which means there is a constant interaction.
See Maps below:
Every Country Biggest Export > https://images.vouchercloud.com/image/upload/q_auto,f_auto,fl_strip_profile/export_map
Every Country Biggest Import > https://images.vouchercloud.com/image/upload/q_auto,f_auto,fl_strip_profile/imports_map
Market Today
The openness on today market has allow an interaction on the world that was plastered in David Ricardo law of comparative advantage in his Principles of Political Economy in 1817, with the help of technology improving communications and destroying the barriers of distance, allowing the businesses and the individual to interact freely for a mutual accorded fee has allow to fill the breezes of a free market, however, the battle against taxes and tariff is still far from settle.
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