Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence

One of the Ricardo’s view of the future market economy in the long term was the theory of comparative advantage. He introduced this theory in his book entitled the ‘Principles of Political Economy and Taxation’. This theory claimed the benefit of international trade could be promoted when nations represent considerable authority underway of merchandise in which they have a flat-out preferred standpoint as well as a relative favorable position over different nations with a specific end goal. This theory proposed that international trade would bring profit to all exchanging accomplices and gives a formal justification to organized commerce arrangement. It dishonors the mercantilist perspective of exchange, which sees the gathering of fare surpluses as the way to profit by rate. “To bring Ricardo’s ideas to the data, one must overcome a key empirical challenge. Suppose, as Ricardo’s theory of comparative advantage predicts, that different economic activities based on their productivity differences”.

Next, Ricardo supported the theory of wages. He supported this theory held wages relied upon the relative measures of capital accessible for the installment of specialists and the extent of the work drive. Wages increment just with an expansion in capital or a lessening in the quantity of specialists. Ricardo indicated that wage looks for a level that is only adequate to empower laborers to subsist and propagate their race, without either increment or reduction. As Ricardo argued "profits depend on high or low wages, wages on the price of necessaries, and the price of necessaries chiefly on the price of food".

Furthermore, Malthus was one of the economists that focused on everything about populations. He explained his thought about population in his book entitled “An Essay on the Principle of Population’. As per Malthus, the development of a population is a result of the entire procedure of economic improvement, but the insufficient of proportionate increment in wealth cannot promote the expansion in populace. Insignificant increment in populace cannot give an upgrade to financial extension. Populace development empowers advancement only of it create an expansion successful demand. The rate of capital amassing would be impacted by the interest in work. Malthus did not suggest the need from claiming reserve funds and speculation for the development of economic, however he proposes a level of ideal inclination to spare. Along these lines, he had a photo of a propelled the growth of economic development with utilization, speculation, and investment funds extending together. He characterized the issue of advancement by clarifying the distinction between potential gross national item and actual gross national item. He is more worried about the brief time frame changes of riches rather than a put a trust in any long run hypothesis. However, the vital issue is one of achieving an abnormal state of potential gross item. He said that four important components such as ashore, work, capital, association will impact the extent of extent of potential gross national item.

In short, he tried to point that when these four components are consolidated in right extent, they boost the creation in two noteworthy areas such as the rural part and the modern segment of the economy.