Steps to follow in completing this assignment: 1. Consulting your text and any o

Question

Steps to follow in completing this assignment:

1. Consulting your text and any other source you would care to cite, and prepare your answer using the word processor of your choice. [200 words is a general guideline, not a rigid limit.]

"The theory of comparative advantage (and the associated projected economic gains from free trade) is a well-known economic theory, but what happens in the real world is closer to the opposite. If, as the result of free trade, some American workers lose their jobs, this can hardly be a sensible economic strategy for our country. Indeed, we will maximize economic opportunity (and the rate of economic growth) for the U.S.A. if we preserve American jobs by imposing tariffs and repealing our trade agreements with other countries."

Explanation / Answer

Ricardo's theory of comparative advantage is usually used as the centre point of arguments in favour of free trade – implying abolishing tariffs and quotas on commodities imported from foreign countries. It is claimed that, by trading freely with other nations – even those which, documented, are more efficient at producing goods and services – one can become more prosperous than by shutting one's borders.

However, some economists have stated that, Ricardo's concepts are no longer strictly applicable to today's more sophisticated economic world. They say that when Ricardo set out his theory in the early 19th century there existed effective restrictions on people moving their capital overseas. This is not the scene now.

Others say that comparative advantage is very simplistic a theory, assuming, that each market is perfectly competitive and that there exists full employment, and that displaced workers can easily move to other jobs at which they as productive.Some argue that were economies to specialize in certain industries, as the theory of comparative advantage states, this reduces their economic diversity greatly, leaving them highly sensitive to a change in circumstances.

Yet, most economists argue that comparative advantage is still one of the most fundamental economic concepts of all, for it shows world trade and globalisation, proving that countries can prosper even more by looking outwards rather than inwards

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.