What is the law of comparative advantage?

The law was first designed by David Ricardo, an economist working in London in England, in the first part of the 19th century. His work was built on previous economic thinking, such as the theory of the absolute advantage submitted by Adam Smith. Smith suggested that the country be involved in international trade using those products in which it had an absolute advantage - it means they could more efficiently than other countries. Ricardo went further and stressed that it made sense for the country to specialize in products in which it has a comparative advantage, which means that the cost of producing certain goods or services is lower in that country than in other countries. Specializing in these goods and services and involvement in international trade can increase its production.

The Law Comparative benefits takes advantage of the concept of opportunities that focus on available alternative use of the same resources. For example, if England canE produce a unit of cheese in 20 hours and a unit of wine in 30 hours, while Denmark can produce a cheese unit in 10 hours and a unit of wine in 25 hours, then Denmark has an absolute advantage in both products. However, when England produces a unit of wine, skipping 1.5 units of cheese, while Denmark skips 2.5 units of cheese, giving the cost of producing wine larger than England, even though Denmark has an absolute advantage. It can therefore be said that England has a comparative advantage in wine production in this example. If England specializes in the production of wine and Denmark, it specializes in the production of cheeses - in which in this example retains a comparative advantage - both countries can increase their overall performance and national income by involving international trade.

The law of comparative advantages, as Ricardo RESTSZA submits the assumption that production costs are constant, that transport costs are zero and that the products are exactly the same wherever they are produced. Theory also assumes that production fThe actuators - such as capital - are mobile, that there are no tariffs and that buyers and sellers have a perfect market knowledge. The theory only takes into account labor costs, because Ricardo has decided that all costs can be reduced to labor costs in the last analysis, which is an idea known as work with value. In the modern world, it is possible that the law of comparative advantages has some importance for trade between developed and developing countries, although its activities are less obvious in relation to trade between industrial countries.