Question

In 1817, David Ricardo wrote the following,"England may be so circumstanced, that to produce the cloth...

In 1817, David Ricardo wrote the following,"England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time."
1. In Ricardo's example, in the production of which good does Portugal have a comparative advantage?
2. In which country will the average wage (the standard of living) be higher?

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Answer #1

Ans: In Ricardo's example, In Portugal, the production of cloth having a comparative advantage over wine. So the ratio for cloth is 1.25, whereas for wine it is 0.89. so higher is better. In the case of England, wine is having a comparative advantage with 1.2.

2. Portugal is employing less labor for 1 unit of cloth(90) and wine (80) in comparison to England cloth (100) and wine (120). As less labour is employed due to technological advancement or high skilled labour in the production process so the wage is higher then the other country. so Portugal is having higher wage and living standard in comparison to England.

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