Manag., December-2019 – Q18
0. Theory of Comparative Advantage given by David Ricardo in 1817 is:
- Option : D
- Explanation : The great thinkers of liberal economics
believed that free trade would benefit all
parties through the mechanism of what they
termed “comparative advantage.” The
Scottish economist David Ricardo established
comparative advantage as the logical basis
for free trade as long ago as 1817. He showed
that everyone would enjoy higher incomes
and a better standard of living if every
producer, be they country, company, or
individual concentrated their activity in areas
where they had the greatest cost advantage
(or the smallest cost disadvantage) over their
competitors.
To illustrate his theory, he took the example of two countries, Britain and Portugal, and two products, wine, and cloth. In the early nineteenth-century Britain was the most technologically advanced economy in the world, but Portugal has a much better climate for grapes, so Ricardo argued that the welfare of both would be maximized if Britain stuck to making cloth and imported Portuguese wine. Any other arrangement would be a waste of time and money.
