Comparative Advantage

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  • A theory of international trade that was put forward by David Ricardo in his publication Principles of Political Economy and Taxation (1817). Comparative advantage was an improvement on two theories of international trade: (1) mercantilism and (2) absolute advantage.

    Mercantilism, one of the earliest theories of international trade, presented international trade as a zero-sum game in which little or no consideration was given to mutual benefits from trade. Trade was to be highly regulated to acquire bullion (precious metals). The French Physiocrats challenged the fundamental arguments of mercantilism by advocating the theory of laissez-faire (lit. “to let alone”—a term coined by the Physiocrat Franfois Quesnay) in the 18th century, based on which Adam Smith promoted the theory of absolute advantage and free trade as the ...

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