Question

Elaborate David Ricardo’s Comparative Advantage model and give a relevant example of trade (product) between U.S and Iran.

Answer 1

David Ricardo’s comparative Advantage Model:-

Comparative advantage is an economic term that mention to an economy’s capacity to produce goods and services at a lower opportunity cost.

“David Ricardo in his book”. On the principles of political economy and taxation in 1817 given the law of comparative advantage.

Comparative advantage is most fundamental principle in the theory of international trade. It is the best option of given a trade-off. If we are comparing two countries there are some benefits as well as well disadvantages also, comparative advantage is the best theory. It suggests that countries are busy in trade with one another, exporting the goods that they have a relative advantage in productivity.

Example of trade between US and Iran:-

Us imports crude oil and petroleum products from Iran. Iran has comparative advantage by exporting crude oil and petroleum products. The cost of crude oil production is very low and they have many crude oil stations.