Question

1. Did the concept of comparative advantage strengthen or worsen the case against Mercantilist trade doctrine?  Why?

2. Is it possible for trade to take place in the Classical world of David Ricardo without complete specialization of production in both countries?  If so, when?  Who will receive the gains from trade in this instance?  Why?

I need clear explanations. Many thanks

Answer 1

Answer 1:

The concept of comparative advantage strengthen the case against Mercantilist trade doctrine because Mercentilists believed that a nation should concentrate on increasing the wealth of gold and silver and only increase its exports and do not import goods from other nations because it will lead to decline in the wealth of gold and silver in the nation. On the other hand, the theory of comparative advantage states a nation should export the good whose opportunity cost of production is low and should import the good in which it has high opportunity cost of production. If a nation engages in trade then it can move from a lower production Possibility Frontier to a higher Production Possibility Frontier and overall satisfaction of the consumers will increase. Thus, trade makes nations better off as opposed to the idea of mercentalism where a nation should only export and no import any good from other nations. Thus, theory of comparative advantage strengthens the case against Mercentalist trade doctrine.