Question

Question 4

In 1975, wage levels in South Korea were roughly 5% of those in the United States. “If the United States had allowed Korean goods to be freely imported into the United States at that time, this would have caused devastation to the standard of living in the United States, because no producer in this country could possibly compete with such low wages.” Discuss this assertion in the context of the Ricardian model of comparative advantage.

Answer 1

Ricardian model of comparative advantage generally deals with two countries 2 commodities and 1 factor ie;labour labour is main factor for determining the competitive advantage.This theory mainly explains the gains from the trade.As given context is not correct according to the theory such as if both countries produces less cost goods thereby decreasing their labour cost ie wages, in account with wages US can produce its own goods with good standards without trading. so low wages can be attained by low prodcutivity of goods.