Using examples, discuss and illustrate the keystone of international trade, the theory of comparative advantage.
David Ricardo, introduced the theory of comparative advantage which focuses on the relative differences in production of two items. If country A had the absolute advantage in the production of two goods , trade and specialisation between 2 countries could still occur because there can be comparative advantage in the production of one good for the other country.
Example: If a lawyer charges $200 an hour for legal services. The same lawyer can type faster than the administrative assistant which gets $50 an hour.They don't do both jobs because if the lawyer does so, for each hour they type , they sacrifice $150 had they been administering legal advise. By specialisibg in one, each person can maximize their overall productivity.
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