Talk:Comparative advantage/Archive 1

Translation Request

• Oddly, the french version of this article is of a featured article class. Could we perhaps get a translation of it back into english?Smallman12q (talk) 17:43, 26 January 2009 (UTC)

Oh my god, that french version looks friggin awesome. I second your call for a decent translation of it (or at least some sections). --Forich (talk) 10:26, 23 February 2009 (UTC)

Whoa! They have vins and fromages and somehow manage to work Stanislaw Ulam and some kind of a sea battle into it. I don't speak French but that looks like one helluva job over there. Math, graphs, pictures, explanations - it looks really good. Here it is [1] for anyone who could help us out here.radek (talk)

So still no french translator=(.Smallman12q (talk) 21:36, 4 May 2009 (UTC)

Surprise, surprise: another lacking Wikipedia article on a fundamental component of economics. If the French can't beat the English in war, they sure can when it comes to literature and education. Anyways, I know a bit of French, and if my final exams will one day be finished, I might take a look at each of the articles. However, as the tag at the top says: it needs a lot of input from someone who is an expert on economics. SweetNightmares (talk) 23:50, 7 December 2009 (UTC)

Added to Example 2 & lawyer example, showing flaw in comparative advantage

I added to example 2 and the lawyer example, to show how criticisms of comparative advantage would respond to those examples. In the response to example 2, I demonstrate Ha-Joon Chang's idea of economic dependence. In the response to example 2, I demonstrate why in the real world of global trade, countries are not willing to specialize in some products. --216.165.95.70 (talk) 19:33, 5 November 2008 (UTC)

Fixed example 2

The prior example 2 demonstrated absolute advantage (Southland was more efficient at producing food, and equally efficient at producing clothing.) Comparative advantage is the idea that you should trade even if you are more efficient at producing everything. So in the new example, Southland is more efficient at producing clothing and food, yet it can be shown that trade still improves overall world production. --216.165.95.70 (talk) 19:33, 5 November 2008 (UTC)

[IM SORRY, BUT I JUST FEEL THAT THE EXAMPLE IS REALLY POORLY WRITTEN/EXPLAINED LEAVING READERS WITH MORE QUESTIONS THAN ANSWERS. THE EXAMPLE OF SOUTHLAND AND NORTHLAND DOESN'T EXPLAIN WHY SOUTHLAND DOESN'T DO AS NORTHLAND AND SPECIALIZE. IF IT DID THEN IT WOULD HAVE OUTPUTS OF 400 FOOD AND 0 CLOTHES. FURTHER, THE FLAWS IN THEORY DO NOT REFLECT THE EXAMPLES. PLEASE ELLABORATE!] —Preceding unsigned comment added by 164.11.204.51 (talk) 13:47, 14 November 2008 (UTC)

That example is the classic comparative advantage example, and is in every econ book. But to answer your question, (1) if Southland specializes in food, and Northland specializes in clothing, then the world clothing output drops from 150 to 100. You're trying to show that trade increases world production, so you need to keep clothing production at least at its pre-trade level of 150. (2) Re: the flaw in theory part, I'm not sure which part you have a question about, but let me explain it from the start since it's very simple. That section is saying that if Southland taught Northland how to produce goods as efficiently as Southland produces them, then Northland can produce 200 food and 100 clothing. With Northland producing that efficiently, and Southland producing 200 food and 100 clothing, then world production is 400 food and 200 clothing, right? So if Southland teaches Northland how to produce efficiently, then world production is higher than you can get with specialization and trade (that results in 300 food and 150 clothing.) In case you're curious, world production would also be higher than the scenario you proposed, where Southland produces 400 food and Northland produces 100 clothing. --216.165.95.70 (talk) 14:49, 20 November 2008 (UTC)

In case you had a question about the second "flaw in theory" section, I added an example from the real world - the competition between Airbus and Boeing. Comparative advantage would tell France to leave the airline industry to the United States, and stick to other products. But rather than making "French" products (not sure what those would be, wine? cheese?), France wanted a part of the airline industry, because it's an advanced and profitable industry. Let me know if you have any other questions. --216.165.95.70 (talk) 15:20, 20 November 2008 (UTC)

A nameless contributor says:

The theory of "comparative advantage" depends on a basic necessary condition. That is, capital from one country cannot be moved to the other country (capital immobility). Ricardo pointed out that if capital were as freely mobile between England and Portugal as between London and Yorkshire, then trade between the two countries would be governed by the labor theory of value (absolute advantage in terms of labor cost) rather than comparative advantage (assuming labor is immobile).

Many who champion the freemarket ideology today continue to cite comparative advantage as the theoretical economic underpinning. Ironically, the free flow of capital, now a part of the international freemarket framework, removes the necessary condition for comparative advantage theory to work.

If you want to test a freemarket advocate, ask them about the role of comparative advantage. Then, ask them how capital mobility fits in. If they cannot explain this, you can conclude they don't know what they're talking about.

See: "For the Common Good" Herman Daly, Chapter 11

and added this text to the article:

The theory of comparative advantage rests on the necessary condition of "capital immobility." If the wine or cloth makers can move financial (or labor) resources between countries, then the ratios discussed above become imbalanced, and the theory erodes. Given the liberalization of capital flows under free trade agreements of the 1990s, the necessary condition of capital immobility no longer holds. As a consequence, the economic theory of comparative advantage no longer supports free trade theory.

This appears to be a minority position among trade economists (e.g., see this discussion of some of the issues). It's also misleading to go after Ricardo's original version of comparative advantage without taking into account further developments in the last 180 years. So I'm pulling this paragraph out for the moment. Perhaps it can be replaced by a less one-sided discussion of how the theory is complicated by capital mobility and other effects? Populus 02:48, 16 Dec 2003 (UTC)

This is an often made, WRONG, criticism of the idea. The portion by Herman Daly that is presently in the article, if one squints really hard, can sort of make sense. In other words, if differences between capital/labor ratios are the ONLY source of comparative advantage (so no differences in productivity due to amount/quality of land (which is obviously immobile), climate, technology, institutions, etc.) then yes, capital mobility between countries can eliminate comparative advantage (the slopes of the production possibility frontiers will be the same). This of course doesn't mean that "trade is bad", just that there is no incentive to trade - in fact, with no comparative advantage, absolute advantage is not enough to generate trade. Which basically means that, since we still observe trade between countries (which isn't due to increasing returns to scale) either capital is not as mobile as critics claim or that there are other sources of comparative advantage out there. In fact this is basically what Ricardo says. I left the Daly part in though, at least for now. I did take out the reference to Paul Craig Roberts and Lou Dobbs which is along the same lines but is a lot more confused and more plainly wrong. I've also renamed the section which references Ha-Joon Chang to "Economic dependence" rather than "oppression" to make it more npov and to link it up with earlier, similar critiques of trade theory by dependency theorists (Dependency theory). In fact this section could benefit from inclusion of material from that area. A link to Immiserizing growth could also be drawn, though that's not a criticism per se (and mostly only a theoretical possibility).radek (talk) 05:53, 29 October 2008 (UTC)

Examples

NOTE: this is NOT an example of comparative advantage, it's an example of absolute advantage and should be removed. Comparative advantage is simply an INTERNAL ranking of efficiency and has NOTHING to do with your trading partner. (you seem to contradict economic theory with that - http://www.econlib.org/library/Topics/Details/comparativeadvantage.html) —Preceding unsigned comment added by 164.11.204.51 (talk) 14:06, 14 November 2008 (UTC)

I have come up with a story that made this idea clear to me; Perhaps you may like to incorporate it into the page somehow.

You live in the sand dunes. In the sand dunes, you can spend 3 days, to make clothes, or 5 days, to make wine.

You live next to the fertile fields. In the fertile fields, you can spend 1 day, to make clothes, or 1 day, to make wine.

If you want wine, you should spend 3 days making clothes. Then, go to the fertile fields. Trade the clothes for wine, because they have equal value. Then, bring the wine home.

I suspect that in the long term, the people in the fertile fields will make slightly less clothes and slightly more wine, because there's suddenly a bunch of desert people selling nifty clothes and buying up wine.

So, it works out.

However, I still don't understand what the "comparative advantage" is here. I understand the machinery. I understand the model. Now I just need to know what parts of it form the "comparative advantage."

Ricardo used the term "comparative advantage" to differentiate it from Adam Smith's "absolute advantage". According to Smith, not only do the ratios need to differ, but there must be an advantage in absolute numbers for each of the participant before trade will occur. But according to Ricardo, absolute advantages are not required, just relative, or comparative advantages. There could be trade even if one producer is absolutely more efficient at producing both commodities. mydogategodshat 07:37, 13 Feb 2004 (UTC)

—Preceding unsigned comment added by Kanzei (talk • contribs) 21:57, August 28, 2007 (UTC)

Is it the 1:3 vs. 1:5? Is it that, since the ratios are different, the mathematical system adjusts to an equalibrium, to account for everyone present?

The comparative advantage is the opportunity cost of making clothes. In the Sand Dunes, one unit of clothes costs 1.66 units of wine. In Fertile Fields, one unit of clothes costs 1.0 units of wine. Since clothes are cheaper in Fertile Fields than they are in the Sand Dunes, then the Fertile Fields has a comparative advantage in making clothes.

Note that in the Sand Dunes, one unit of wine costs 0.6 units of clothes. In Fertile Fields, one unit of wine costs 1.0 units of clothers. So the Sand Dunes actually have a comparative advantage in making wine. Anonymous User

Hope this helps.

The story certainly helped me - and so I looked up the theory in a 1st October 1998 article in The Economist magazine, and developed your excellent idea of the story into what I've just added to the article.

Please edit and criticise!

Chris Baker 6 April 2004

---

Example 2 seems to be incorrect on one count (confusing numbers with their reciprocals) and not ideally presented in another (the order of the rows is not the same in each table). Making the tables consistent with the text at the start of the example gives:

Cost in days of each item

Country	Clothes	Wine
Northland	3	5
Southland	1	1

Production capabilities each day

Country	Clothes	wine
Northland	0.33	0.2
Southland	1	1

If 1 day is used to produce wine and 4 days are used to produce clothes:

Country	Clothes	Wine
Northland	1.33 (4*0.33)	0.20 (1*0.20)
Southland	4.00 (4*1)	1.00 (1*1)
Sum:	5.33	1.20

Southland produces wine in all 5 days and Northland produce clothes all 5 days:

Country	Clothes	Wine
Northland	1.67 (5*0.33)	0.00 (0*1)
Southland	0.00 (0*1)	5.00 (5*1)
Sum:	1.67	5.00

Example 2 does not use the best choice of figures to explain comparative advantage, because trading gives us much more wine, much less clothing, and therefore a lot of drunks wearing rags. Of course, supply and demand will prevent this happening. I think the example on the German Wikipedia [2] is easier to understand as a first example, because trading gives a small surplus of both commodities.

---

RE: I agree. I deleted the example from the main source. Pls, edit the main source. --PBS27 12:08, 15 October 2005 (UTC)

Is it biased to point out the flaws in a broken theory?

Yes, generally speaking, it is. You should cite notable experts in the field, rather than just expound on your opinions. - Nat Krause 13:07, 21 Sep 2004 (UTC)

Comparative advantage is a broken theory. It sounds good on paper, but that was before the gold standard died. Also, the nameless contributor above is right about the issue of capital flight.

The main problem with comparative advantage has to do with checks and balances, and the fact that money is a good. When the theory was first created the world was on the gold standard, meaning gold was the medium of exchange. Since there was a finite supply of gold, trade was kept in check. If a country bought too many goods it ran out of gold and had to cut back on it's consumption. With the dissolution of the gold standard in the 1930's came the rise of fiat money, money created by government decree. Now a country can buy all the goods it wants just by printing more money.

I disagree. Money is simply a means of facilitating exchange. Goods and services are valuable while money just facilitates the trade of these items. Raising the money supply has no effect in the long run. It simply increases the number of zeroes behind the price of a gallon of milk. The milk itself is still worth the same.

The only thing stopping the country from spending like crazy is that the more a country spends the less its money is worth relative to other currencies. However, there are ways to stop a currency from losing value. The first way is to have a strong military and to force the world to use the currency as a medium of exchange. The second way is trade. The cheaper a currency, the cheaper its goods. So whoever has the cheapest currency can sell the most goods at the lowest price. So if country A buys the currency of country B and takes it out of circulation, this causes the value of currency B to be artifically high and the value of currency A to be artifically low. As a result, country A can export more goods to country B than it would otherwise. Country A can thus destroy the industry of country B by flooding it with cheap goods. In the process country B will have a huge trade debt to country A, since country A only imports money from country B. If left unchecked country A will eventually be able to dictate politics in country B and will eventually control or own country B. The big flaw with comparative advantage is that money is a good.

Another wrinkle in comparative advantage is what happens if the market ever becomes saturated beyond it's ability to consume goods and services. How does comparative advantage deal with this unemployment? Should country B lay off half it's workforce because country A has a comparative advantage? As a side note: Since the supply of workers will forevermore be greater than demand, this will cause wages to spiral to zero for the majority of workers.

First, it should be noted that in David Ricardo's time credit money was widespread enough that there was indeed an endogenous money supply and that it wasn't entirely fixed. It is also possible to have an improperly valued currency under a gold standard.

However, this doesn't relate to comparative advantage. Comparative advantage is more fundamental than that, and Ricardo clearly recognized that the market could be distorted by aggressive practices. As long as a person has any productive capacities, comparative advantage can be applied; the sole implication of it is that, sometimes, people will benefit from trade, and that people (aggressive practices aside) are better off being given that option.

The theory also doesn't explain or argue against unemployment, or relate to the way that wealth will be distributed. Although later Ricardo would become the first to really look into this from the perspective of an orthodox economist, it doesn't contradict the incredibly basic idea that people, as long as they can produce something, will benefit from trade if their relative value of the goods exceeds the relative price. Although you can indeed have a massive trade deficit, no money, and no property, the implication of comparative advantage still stands. Your points are valid arguments against free trade, but they kind of 'go over the head' of comparative advantage. Adam Faanes 21:06, 7 Oct 2004 (UTC)

The theories of currencies above are flawed, but whether they are or not does not affect comparative advantage, which is a real concept (independent of money). As long as there is a fixed ratio of exchange between goods (including currencies if you like) competitive trade can be defined. CSMR 01:43, 3 October 2005 (UTC)

Another Paulite strikes again. All they talk about is "War for oil" and "Gold standard".98.165.6.225 (talk) 14:15, 4 September 2008 (UTC)

"Should country B lay off half it's workforce because country A has a comparative advantage? As a side note: Since the supply of workers will forevermore be greater than demand, this will cause wages to spiral to zero for the majority of workers." the theory of comparative advantage says, no. there are a lot of assumptions in CA, just like the fact that the half of workforce should be retrained in producing the now specialised good, assuming they will be just as efficient. what i don't understand is, why all the assumptions. it's just a reason why trade would occur in fairyland, with every assumption under the sun. not for real world trade. in real world, employment should have priority over more choice and lower priced goods for imports. —Preceding unsigned comment added by 164.11.204.51 (talk) 14:40, 14 November 2008 (UTC)

CA is not the whole story

There seems to be *a lot* of confusion here about what comparative advantage is, and what it sets out to explain. It is not supposed to be a full theory of international trade - it is the basic, page 1, textbook model which explains why countries might want to trade with each other. Its pivotal assumption, which by your capital mobility etc. criticism you wish to attack, is that each country's production function is fixed ie. in Country A for every day you work you can make 5 potatoes or 3 tomatoes and that rate of transformation is fixed. Now, given this assumption, what the theory basically says is that countryies relatively better at making potatoes should make potatoes, countries relatively better at making tomatoes should make tomatoes - and they should then trade with each other. The story submitted above is a very helpful illustration of this intuition.

Now, your point about capital mobility. Fast forward 100 years or so from Ricardo, and you get the Hecksher-Ohlin theory. Now these guys said that technology wasn't fixed as Ricardo assumed, but that it depended on what resources a country had. In a country relatively rich in capital, capital will be relatively cheap, and hence the country will have a comparative advantage in making capital-intensive goods. Conversely, countries which are capital-poor, but have a large labour force, will have a comparative advantage in labour-intensive goods, because wages will be low. As you say, if a country gets a major injection of capital it will become relatively better at making capital-intensive goods, and it will reorient its exports towards those goods. BUT an important conclusion of their theory is that there is no reason under such circumstances for capital to move. To see why will require a little example, but it doesn't get too technical...

Imagine we have two countries, lets call them America and Europe. Both countries make two goods - food, which is labour-intensive, and cars, which are capital-intensive. Europe has a relatively large population, while America has a relatively small one. To start with neither country trades, so they both produce both goods. Now open trade. America will be eager to import European food - cheaper than American because Europe has a large labour force, and hence low wages. Conversely, Europe will be more than happy to reduce its production of cars, and instead import cheap American ones (cheap because capital is relatively cheaper in America). So what we'll see is a big increase in demand for European food, and a big increase in demand for American cars. So gues what will happen. European entrepreneurs will be desperate to get out of car manufacture and start producing food, which will cause demand for European labour to rise, and thus raise European wages. Conversely, demand for European capital will fall, and European capital will get cheaper. The opposite will be happening in America. So what do we have at the end of all this - European wages will have risen until they're equal to American wages, and the price of capital in America will rise until it equals the price of European capital (and European capital will be cheaper, and American wages lower). So the grand conclusion of all of this: if you have free trade, you don't need factor mobility. By the end, the returns to capital in America and Europe are the same, so there's no incentive for anyone to shift capital from one country to the other.

Now, I'm not going to pretend that this theory is perfect either - there's plenty of empirical evidence to contradict it, and there's plenty more theoretical complications you can add on so that factor price equalisation no longer holds. But the important point I'm trying to make here is that no theory is perfect, nor do they pretend to be. Comparative advantage isn't perfect, but gives a good basic story about why countries trade with each other. Hecksher-Ohlin isn't perfect, but fills out the story somewhat, and makes some more predictions about what happens when two countries trade with each other. Economic theories seem to come in for bitter attacks from people, for not being perfect. Now I'm sure the reason for this is a lot of disgustingly simplistic and ideological reasoning on the part of certain free-trade lobbiers, and of course, they are wrong to use these theories as if they are perfect. But academic economics is about the most self-conscious of all the sciences in realising how imperfect its theories are, and how much they fail to explain. But this doesn't mean we should discard the theories, because even the most basic have something important to say. Discarding Comparative Advantage, would be as stupid as saying that since Einstein came up with relativity, there's no point understanding Newtonian physics. This is especially so in economics, where the simplest theories tend to have the strongest explanatory power - refinements almost always come at the cost of reduced scope, and certainly at the cost of simple intuition. The reason people cite theories like CA, is that they are a good starting point for a discussion of free trade, and most people can easily get their head round them. So my basic point is: criticize the misuse of CA theory (or any theory) but don't lay to heavily into the theory itself.

Briefly on the money stuff. Yes, currencies can be manipulated to influence world trade - an important example recently has been East Asian central banks buying dollars to keep the dollar strong, so that they can keep flogging plenty of exports to America. But this is a pretty peripheral influence - central bank resources are tiny compared to the sway of the market, a by far more important determinant of the exchange rate is how many people want to buy your goods, and this comes down to your fundamentals - what do you make, and how cheaply do you make it?

But for the sake of argument, let's go with this example of nasty big country A, buying lots of B's currency so that people in B will buy A's goods and have a huge trade defecit. Now, A when it buys B's currency, isn't just buying "money" - no one sits around holding large quantities of cash, because you'd be stupid to do so. You'd either use your currency to buy goods, or you'd use it to buy investments with a return. (That's why changing the interest rate is the main instrument country's use to alter the value of their currencies - raise the interest rate, and money will flood in from people wanting to earn that higher rate on their savings.) Now for the first thing country A is going to buy investments, and thus develop an interest in the performance of businesses in country B - you wouldn't deliberately cripple that country's economy, because it would damage your investments. Now there is potentially a serious problem with country A taking over businesses in country B, and hence taking control of the country's resources. (Let's briefly note that the two countries who have the notorious problem of running prolonged trade defecits while maintaining relatively strong currencies are the USA and the UK.) But let's say country B is in this position, and is worried that A investors are taking over the country's productive assets, because people in country B are buying too many foreign goods and selling their assets in order to buy them (because that's essentially what's happening here). Simple solution: drop your interest rates. Foreign investors will go flooding out of the country, the exchange rate will fall. Imports will be expensive, and people in country B will stop buying them, at the same time demand for country B's suddenly cheaper exports will surge. To pay for all these exports, people in other countries will either sell you their own goods, or if you don't want that they will sell you their assets - holdings in their country or yours.

As for being able to print money, for every dollar you print, you simply devalue the dollar, at least in the long run. There are important short-term effects, which I'm not going to go into, but basically printing money is used to manipulate *prices*, specifically those of assets, to manipulate people's consumption patterns. Nothing so simplistic as just printing off money and buying everything you want - if it was that easy everyone would be doing it (note again, that the countries with the tightest monetary policies are those in North America, Europe and East Asia).

But anyway, the problem you're getting at in these stories is an imbalance of power, not anything particular about the current economic system. Obviously, it's a concern that large countries could dominate smaller ones, and presumably if they had the will and the resources, manipulation of the economic system could be one way to do that. The Soviet Union rarely used to bother - they just sent in a load of tanks. But you're stories just don't refelct anything that's happening at the moment in the real world - quite the opposite in fact. The IMF (and implicitly, its larger donors) frequently gets criticised for being too harsh on countries - for concentrating on reducing their trade imbalances swiftly without concern for the adverse effects on the rest of the economy, or poor parts of the population. The main problem for small developing countries is that they can't import large quantities of the goods they need without the currency weakening seriously.

I apologise for this lengthy, and slightly confused rattle through some basic trade theory. I just think that economic theories come under a lot of criticism, get mangled and misinterpreted, and it all comes out sounding like witchcraft. Actually most of the major economic theories, especially the important ones, are deceptively simple, but communicating this is the difficult part. Like any subject, economics has its flaws, and no one (with any brains) pretends otherwise. I have plenty of problems with the way the economic system works, the insistence on trade liberalisation, the lack of generosity towards developing countries, and the dogmatic use of theories like CA by people who want to push through politically motivated agendas. But go after them, not a harmless, useful, and relatively intuitive economic theory.

Krugman

Is there any better reference than Krugman? His article is reasonably well-written, but he cannot himself restrain himself from expressing en passant his opinions on the evolution, computation and intelligence, and writers in those areas. CSMR 01:48, 3 October 2005 (UTC)

Another worked example

I thought this article had become a little confused/confusing, so I dug out some old lecture notes and a university text book and put together another worked example (example 3). I haven't deleted any of the other examples - but the page does need some trimming (agreed?).

Possible improvements: some charts showing the production possibility frontiers of both economies before and after trade, showing that the theory allows consumption outside of the PPF for each economy.

Comments welcome. - Martinku 17:09, 18 November 2005 (UTC)

Capital or Factors of Production?

I think Example 3 is very good, and should be used as a basis for rewriting some of the other stuff. The criticisms of CA include a statement that it assumes that capital is immobile, but I think this is false. According to Example 3 (and my understanding), it is important that some of the factors of production are immobile. While capital may be mobile, labor and land are rather immobile. And what does it mean for trade to "benefit a country" anyway? Is it different than benefiting the individuals within the country? Does it require that all individuals within the country benfit? AdamRetchless 03:44, 5 May 2006 (UTC)

I noticed some problems with this also; "Perfect transnational mobility of factors of production" seems to imply that the two countries would be indistinguishable from one another, economically speaking, since everything that affects production would flow freely between them. The principle of comparative advantage wouldn't be invalidated, but instead there simply wouldn't be any comparative advantage in this case, since there would be no differences between the two places. I'm no economist, though, and I might just be misunderstanding what "perfect transnational mobility" means. Can anyone explain this further? --Dirk Gently 03:55, 29 January 2007 (UTC)

Comparative Advantage graphs, please

Spot on Martinku! A graph is worth 10MB. 2 linear production possibility curves with different shopes are sufficient. Where to get such, that is the question. If someone can get graphs & either:

work them into the text of the article or

post them into the this Talk Page with or without text,

that would be a great absolute advantage.

Seeing that both entities (countries, states, companies, regions, individuals, ...) with different slopes of their Production Possibility Curves could reach higher comsumption levels by specializing according to CA is believing. Think Windows vs. DOS. BW, Thomasmeeks 10:50, 14 August 2006 (UTC)

Added an easier way to understand Comparitive advantage

I added an easier way to understand Comparitive advantage from a masters degree textbook.

I replaced this:

Comparative advantage may be compared to absolute advantage. When one entity (be it a company or a country) is able to produce more efficiently than another entity it has an absolute advantage: that is, assuming equal inputs, the entity with an absolute advantage will have a greater output.

...with this:

Under "absolute advantage" each state in an unregulated international economy would find a productive niche based on absolute advantage, i.e. it would benefi by specialising in those goods it produced most efficiently and trading with other states. With comparitive advantage, even if one country has no "absolute advantage" when it manufactures a product, it should specialize in and export those products which it has a relative advantage (i.e. the least cost advantage).

This is the clearest explanation of Comparative and absolute advantage that I have found. Nothing that I have seen on the internet came close. Travb (talk) 06:30, 2 October 2006 (UTC)

I still find all of this to be rather confusing. As someone who has taught Econ 1101 before, I find nothing that would be helpful to a student in my class who does not understand comparative advantage. Comparative advantage in production of a good is held by a person or country who is able to produce that good with a lower opportunity cost of production than all other people/countries. Since the opportunity cost page actually does a good job of describing the concept, I think this definition would be a good starting point. Although comparative advantage is essentially about trade, one doesn't need to talk about trade when defining comparative advantage. Jabberwockgee (talk) 21:21, 19 August 2008 (UTC)

Inappropriate debate

Posting comments in the article like "COMPARATIVE ADVANTAGE IS SIMPLY BULLOCKS!" is nonsense. And it seems to me that most of this discussion is nonsense as well. Leave the debate to the economists; the job of this article is to describe what "Comparative Advantage" is, not to get to the bottom of its veracity. Otherwise we'd never be able to write an article on Santa Claus. CWuestefeld 17:34, 4 April 2007 (UTC)

With an attitude like that, we'd all still think the sun revolved around the earth.98.165.6.225 (talk) 14:22, 4 September 2008 (UTC)

Under absolute advantage, one country can produce more output per unit of productive input than another. With comparative advantage, even if one country has an absolute (dis)advantage in every type of output, it can benefit from specializing in and exporting those products in which it has a relative advantage (i.e., a lower opportunity cost) and importing the goods in which it has a relative disadvantage.[1]

Erm...what? Maybe we could translate this article into something the average person could actually understand?

Comparative advantage is central planning.68.106.248.211 (talk) 11:15, 9 December 2007 (UTC)

"Comparative advantage is central planning" - Without a doubt this is the stupidest comment I have seen for a while. —Preceding unsigned comment added by 130.195.86.36 (talk) 23:20, 10 February 2008 (UTC)

My impression of Comparative Advantage... Asians make electronics, Mexicans mow lawns, blacks pick cotton... Comparative Advantage is one of the dumbest economic theories I have ever heard. So tell me, what should a big country like Communist China specialize in? How about tiny Liechtenstein? Like I said, dumb theory, I can't believe this is the main driving force behind the lunatics of free trade.68.106.248.15 (talk) 07:00, 21 March 2008 (UTC)

The article should contain more reality. the examples of why trade occurs with comparative advantage has so many assumptions that the model is only a reason why trade would occur in fairyland. it doesn't give an example why comparative advantage happens in the real world. —Preceding unsigned comment added by 164.11.204.51 (talk) 13:45, 14 November 2008 (UTC)

Your guys' inability to understand the theory of comparative advantage does not prove it false, nor is it the job of this article to prove it one way or the other. And Lichtenstein is relatively wealthy because it specializes in things such as finance. Lichtenstein is an example of the success of comparative advantage. If you don't understand the theory or it's theoretical grounds, don't edit the article. Executive Outcomes (talk) 17:20, 29 March 2009 (UTC)

Really? Lichtenstein'iens are genetically predisposed to being bankers? How does Lichtenstein have a "comparative advantage" in banking? Wait, let me guess, they have tax breaks to financiers, well that wouldn't be a comparative advantage now.98.165.15.98 (talk) 09:36, 7 April 2010 (UTC)

falsification

Of course you can't falsify this, it's axiomatically true. That's like saying 1+1=2 isn't falsifiable. I'd lean toward pointing this out in the article rather than just that little blurb at the end that it can't be falsified. It's not really a valid criticism. Gigs (talk) 10:10, 21 December 2007 (UTC)

I think 1+1=2 is falsifiable, because falsifiable means you can definitely say whether it's good or false. Something not falsifiable would be "a teapot is gravitating around one of the suns of Alpha Centauri." Arronax50 (talk) 22:43, 20 July 2008 (UTC)

The claim that the theory is not falsifiable had two references in it. One was to someone's Master's or undegrad thesis which I removed as that is not a reliable source. The second one was to Schumpeter, which I don't believe to be correct - can anyone provide the portion of the text that is relevant here? Otherwise it just looks like somebody's own and possibly mistaken interpretation of that text (also the ref is to a 1954 edition which makes it harder to identify) and should be removed.radek (talk) 04:50, 29 October 2008 (UTC)

Dispute over addition to example 2

User: 216.165.95.70 tried to add the following to example 2, but it was deleted by user:Radeksz. Please discuss here rather than get into edit war.

Flaw in theory - The flaw in theory, as shown by the example above, is that world production would be greatest if Southland taught Northland how to produce both products as efficiently as Southland produces it. While it's true that trading results in food production of 300, and clothing production of 150, improving Northland's efficiency would result in food production of 400 and clothing production of 200. This analogy can be extended to the world economy, where developed countries choose to trade with, rather than train and educate developing countries, at the expense of overall world prosperity. --Goallllll1 (talk) 14:33, 5 December 2008 (UTC)

I'm not entirely comfortable with the addition in itself, but more important something like that needs to come from an outside source or it's WP:OR.CRETOG8(t/c) 18:04, 5 December 2008 (UTC)

Quality ratings and this article

Hi. In line with Wikipedia's criteria for C-Class articles,

The article is better developed in style, structure and quality than Start-Class, but fails one or more of the criteria for B-Class. It may have some gaps or missing elements; need editing for clarity, balance or flow; or contain policy violations such as bias or original research.

I strongly support the view that this article lacks the necessary clarity, balance and flow, to make it as B-Class. I will be changing the rating to C-Class. I'm watching this so I can help bringing it up in the quality scale.--Forich (talk) 00:39, 19 February 2009 (UTC)

Origins of the theory

The Lead section defines comparative advantage as an ability. Yet, the article mentions everywhere that comparative advantage is a theory. For example, there is a whole section called Origins of the theory.

I think that comparative advantage has been studied under several labels:

• As a logical proposition about international trade. Here, it is seen as a hypothesis illustrated with sketchy numerical examples. It holds an ideological meaning, as well, since it kinda supports the idea that free trade stimulates trade gains, (in an elegant way, btw). I think that comparative advantage originated at this state, in Ricardo's time.

• As a full model, where a set of assumptions about production technology and consumer preferences (in a 2 goods x 2 countries x 1 factor of prodution world), ultimately leads to explaining trade. At some point, the model was even generalized to an infinite-goods world, by Samuelson and Dornbush.

• As a theory. This is supposed to be the second stage among all the pure theories of international trade: the first being Smith's absolute advantage, the third is Heckher-Ohlin, and the fourth is imperfect-competition / economies-of-scales / product-variety theories. I'm against labeling these as theories, because they are just models (i.e. simplifications of reality), whereas theories are something different. In social science, a theory is a way of approaching a research question, (e.g. a body of knowledge, a discipline). Think of Game theory, that IS a theory, not comparative advantage. --Forich (talk) 05:37, 25 February 2009 (UTC)

Herman Daly

I've edited the article to reduce some of the pro-Herman Daly bias, whose critiques of Ricardo are stated as fact. If anyone has a problem with the edits let me know. Executive Outcomes (talk) 19:17, 22 March 2009 (UTC)

I've also lumped the Herman Daly bit under the Criticism section for better flow. Plus, it didn't really make sense to have a section for a specific criticism of Ricardo, then have another section labeled "Criticism" with a different specific criticism contained therein. Again, if any of this comes across as biased or vandalism, let me know. Just trying to help. Executive Outcomes (talk) 19:24, 22 March 2009 (UTC)

Modified some of the unreferenced assertions in the Criticism section, and removed a discussion of inter-company trade. It seemed like an irrelevant point which confused the counter to comparative advantage as opposed to enhancing it. Executive Outcomes (talk) 17:27, 29 March 2009 (UTC)

Comparative Advantage?

I get that free trade is a politically charged topic, but it seems that this article has been hijacked by one side of the argument. Right now it reads as a critique of comparative advantage, as opposed about comparative advantage. Perhaps another article is required from critiques? I don't know the protocol, but it seems comparable to having an article on Israel that only talked about their being zionist dogs who abused the Palestinians. Executive Outcomes (talk) 17:02, 29 March 2009 (UTC)

I deleted the reference to the 2008-2009 Financial Crisis, as the article it links to does not mention comparative advantage at all and the statement linking comparative advantage to financial collapse had no citation to indicate it represented anything more than the authors opinion. Executive Outcomes (talk) 17:07, 29 March 2009 (UTC)