Submitted by xixi on January 7, 2008

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Comparative Advantage

The theory of comparative advantage was first put forward by David Ricardo in 1815. This theory supplanted Adam Smith’s absolute advantage theory , presented in The Wealth of Nations, which suggested that if a country can provide a commodity at a cheaper price then it should be bought instead of producing it locally. Ricardo’s theory suggested that international trade was not governed by absolute advantage in price but by comparative advantage. Following this principle, a country can still gain from trading certain goods even though its trading partners can produce those goods more cheaply. The comparative advantage comes if each trading partner has a product that will bring a better...

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