Trade To Other Countries example essay topic
418 words
David Ricardo was born on April 19 1772 in London and was the third son of 17 children. His parents were very successful and his father was a wealthy merchant banker, making a fortune on the London Stock Exchange. When he was 14, Ricardo joined his father's business and showed a good grasp of economic affairs. However, he was disinherited by his parents when in 1793, he married a Quaker, so he set up on his own career as a stockbroker. He continued as a member of the stock exchange, where his ability won him the support of an eminent banking house. His success in this allowed him to retire at the age of 42. This enabled him to pursue his interests in literature and science, particularly in mathematics, chemistry, and geology. Along with Malthus, Ricardo was very concerned about the impact that rising populations would have on the economy. He argued that with more people, more land would have to be cultivated. However, the return from this land would not be constant as the amount of capital available would not grow at the same rate. In fact the land would suffer from diminishing returns.
Extra land that was brought into cultivation would become more and more marginal in terms of profitability, and eventually returns would not be enough to attract any further capital. At this point the maximum level of economic rent would have been earned. The knowledge of comparative advantage enables countries to trade with other countries more efficiently and knowing the opportunity cost than are forgone and making the correct choices. It improves diplomatic relations between the trading countries. It also enables us to know which countries are relatively better at producing certain goods as compared to other countries.
So, due to this theory, it allows trade between countries to improve their consumption of the goods in the market. This will raise production and provide more jobs. Indirectly, its solves the problem of unemployment due to increasing population. Because of his theory, it has opened up trade to other countries hence increasing options for decision making. It encourages specialization between countries by showing that specialization actually increases production. However, as trade is only obtainable by strong established industries, infant and senile industries tend to lose out.
As Comparative Advantage can change overtime, markets may not be able to be flexible enough to the.
