Question

According to David Ricardo, what is the role of trade in the wealth of nations? Present his argument.

Answer 1

Answer :

David Ricardo stated comparative advantage in which he argued that, if nations specialize in goods and services where they are stronger at producing them and trade with other nations, then the wealth of all nations increase.

He also believed that all nations benefit from producing according to the relative ratio of efficiency and trading with one another.

Comparative advantage maximizes production of countries and theoretically leads to increased industrial output and lower market prices.

There are also the weaknesses of comparative advantage are as follows ;

• Doesn't account for certain variables such as transportation costs or economies of scale.
• It includes complex calculations across many countries so perfect knowledge isn't possible.
• It assumes there's no tariffs or other trade barriers.