International Trade-Theory of Comparative Advantage

The International Trade is a very important aspect in the growth of the world economy. It has to be regulated so as to ensure that there is free flow of trade between countries. For it to be possible certain considerations have to be taken into accounts and models have been formulated to show this such as the Ricardian model and Heckscher-Ohlin model.

Scope and Methodology

The concept of comparative advantage was first formulated by economist David Ricardo as an explanation of the benefits of international trade for countries. His theory concluded that a country could increase its income by specializing in certain products and services and selling these on the international market.

Study and analyze the theory of comparative advantage that each country should narrowly focus its production, include answers to the questions:

a.Would such a policy imply that the country should never diversify into new products?

b.Can a country know with certainty its comparative advantage without experimenting with the production of new goods?

c.What are the implications for national security of specialization?