According to Ricardo, each nation should specialize in those activities in which it excels, so that it can have the greatest advantage relative to other countries. Thus, a nation should narrow its focus of activity, abandoning certain industries and developing those in which it has the largest comparative advantage.As a result, international trade would grow as nations export their surpluses and import the products that they no longer manufacture, efficiency and productivity would increase in line with economies of scale and prosperity would be enhanced.Ah the lovely economies of scale and specialization, they are so tried and tested and quite easy to prove (even if they reach diminishing returns/increased marginal cost sooner or later)
In sum, while the concept of comparative advantage may seem utterly simple to economists, in order to achieve that simplicity one must invoke a number of principles and useful simplifying assumptions that seem natural and reasonable only to someone familiar with economic analysis in general. ("What do you mean, objects fall at the same rate regardless of how heavy they are -- if I drop a cannonball and a feather ... you're assuming away air resistance? Why would you do that?") Those principles and simplifying assumptions are indeed reasonable, but they are not obvious.Nice analogy, but lab conditions and simplifications are used when one 1. isn't interested/ doesn't care about what is left out 2. doesn't understand the interaction and wish to focus only on one part of the model.
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posted by GavinR at 3:39 AM on January 28, 2007