Surname: Salmon First name: Tati Student number : 12421179 Does the idea of comparative advantage provide a good explanation of current patterns of international trade? For the last two centuries the international trade evolved a lot and many economists tried to explain it. One of the first theories that attempted to explain the international trade pattern was the Absolute advantage theory. A.Smith was a great economist; he is the one who created this theory. For A. Smith countries should specialize in products in which they have an absolute advantage. It was a good Theory but it was excluding countries that did not have any absolute advantage. David Ricardo another great British economist found this loophole in Smith’s theory and…show more content… There is also the example of Tata Motors an Indian company which bought Jaguar a Britain company in order to expand their brand, with these strategies the nationality does not mean anything now. Here we can see that Ricardo theory is not relevant because the factors of productions are not immobile anymore , indeed now with the globalization and the Foreign direct investment, MNCs are likely to rules the international trade which is now more likely to be intra-firm trade.
According to Ricardo’s theory every country should stick to the same type of production. But he did not take into account the fact that a country and its production may evolved. That is the case of many Asian countries. We can take the example of South Korea and China which switched from an agricultural to industrial economies, especially in the manufacturing sector. These Newly industrialized countries (NICs) shows that it is possible to change the type of production and it shows that Ricardo’s theory is not relevant, because as we said before, according to the advantage comparative theory a country should stick to a unique type of production and these NICs are the proofs that it is possible for a country to switch its type of production and its type of trade. From this point of view, we can see that every country can switch their economies and they are not stuck forever at the same stage. There is one economist who talks about the economic growth of countries. For him this economic growth
production to the person who can perform the task with the least opportunity cost. o The person with the least opportunity cost is not necessarily the one who is best at performing the task. The gains from specialization and absolute vs. comparative advantage: Suppose, a farmer and a rancher each work 10 hours a day and they can devote time to growing potatoes, raising cattle, or a combination of two. The farmer can produce an ounce of potatoes in 15 minutes and an ounce of meat in 60 minutes…
that Chinese firms are turning to Bangladesh to make clothes, not least because China is the global leader in clothing manufacturing and exports. But the shift is happening for very obvious reasons.” BBC new 29/08/2012. Using the theory of comparative advantage, discuss the possible reasons why this shift is being observed. Globalisation from the facts of Economics ‘is considered by a rise across borders in the flow of goods, services and financial resources alongside with a rise in international…
The law of comparative advantage refers to the notion that states that every nation, city or town has a production activity that incurs a lower opportunity cost than other nations, cities or towns. This law has a fundamental advantage to international trade. It also applies to different areas of specialization, for instance, division of labor. One can understand the law of comparative advantage by looking at several things that put one nation, city or town on top of the others. This paper looks at…
5) Absolute advantage: When one producer can produce at a lower cost expressed in inputs than another producer, the low-cost producer is said to have an absolute advantage. 6) Comparative advantage: When the opportunity cost of producing output A expressed in terms of output B is lower for a one producer than for another, the low op-cost producer is said to have a comparative advantage. Notice that you can have a comparative advantage when you do not have an absolute advantage. 7) Revealed…
English Language Admission Standard English is the primary language of instruction at UBC. All prospective students are required to demonstrate a minimum level of English before they’re admitted. There are nine ways to meet UBC’s minimum English Language Admission Standard for an undergraduate program. If you do not meet this requirement, you may be interested in one of our academic English development programs . There are nine ways to meet this requirement 1. Complete three or m…
The comparative advantage of Greece in the era of recession Lampros Gallos National and Kapodistrian University of Athens Athens, Greece lam.gal@hotmail.com Abstract The aim of this paper is to investigate the export behaviour of Greece and to identify its comparative advantage. Moreover, through the conclusions of the analysis, is investigated whether the export activity of the country coincides with its comparative advantage especially in the present circumstances, those of recession. Initially…
Curtin Business School School of Economics and Finance 3414 International Economics 311 Semester 1, 2012 Unit study package number: Mode of study: Tuition pattern summary: 3414 Internal Lecture: 1 x 2 Hours Weekly Tutorial: 1 x 1 Hours Weekly This unit does not have a fieldwork component. Credit Value: Pre-requisite units: Co-requisite units: Anti-requisite units: Result type: Approved incidental fees: Unit coordinator: 25.0 8931 (v.0) Microeconomics 200 or any previous version Nil Nil Grade/Mark…
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is just one of many reasons that could cause an economy’s production possibility curve to shift outward. This production possibility curve can also determine an economy’s efficiency. In the Case in Point essay “The European Union and the Production Possibilites Curve,” comparative advantage…
their liberal, free market approach remains present in current economics; thus indicating that both individuals have made significant contributions to the tradition of political economy. In this essay, the theories and views of Smith will be explored and criticism of his work will be discussed. This essay will then proceed to acknowledge and explain Ricardo’s principles, contributions and his critics in addition to assessing which of the two classical political economic thinkers made the most important…