7/21/2019 Abstract

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ABSTRACT

ECONOMICS

COMPARATIVE ADVANTAGE THEORY OF INTWRNATIONAL TRADE

Trade occurs because of differences in prices, prices are differing because of supply

and demand. Supply differs between the countries because of technological

differences and resources availability. The technology difference is explained by the

Ricardo’s comparative advantage theory. The theory of comparative advantage is an

economic theory about the work gains from trade for individuals, firms, or nations

that arise from differences in their factor endowments or technological progressDavid

Ricardo explained comparative advantage in his book on the principles economy and

taxation! in "#"$ with an example involving %ngland and &ortugal. 'e explains why

countries engage in international trade even one country’s workers are more efficient

at producing every single good than workers in other countries. (t is most important

concept in international trade theory. )or example two countries producing identical

goods, but the goods cost will be vary from one country to another country because of 

efficient workers. Ricardo explains the above theory with a wonderful example

 between the two nations called %ngland and &ortugal. The difference in labour 

 productivity determines the comparative advantage across the different countries.

"

7/21/2019 Abstract

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To understand the theory of comparative advantage we need to know two concepts

a* opportunity cost

 production possibility frontier 

+bsolute advantage is also main concept of this theory.

SUBMITTED BY

M. SHIREESHA

2ND

SEMESTER 

ROLL NO: 2015065

1ST

 YEAR 

ountry loth -working hours

reuired for production

 per one unit*

/ine -working hours

reuired for production

 per one unit*

%ngland "00 "10

&ortugal 20 #0

1