Economy Essay Example | Topics and Well Written Essays - 1000 words - 2

economic system - Essay ExamplePrinciples of Political Economy and Taxation was published in 1817. In this publication, Ricardo developed police of rent as well as the labor theory of money (Gonner, 2013).The theory of comparative advantage, as developed by Ricardo, tries to explain the benefit of engaging in international trade. The theory was initially discussed by Adam Smith in the Wealth of Nations. The theory was, however, clearly developed by Ricardo in the disc On the principles of Political Economy and Taxation. In the development of the comparative advantage theory, Ricardo observed that if two countries with a capability of producing two products participate in free trade, each of the two countries will increase productiveness by exporting the commodity that it has a comparative advantage in production. The country would then outcome the other commodity. In this theory, Ricardo implies that comparative advantage, and not absolute advantage, is responsible for internatio nal trade (Gonner, 2013).The example apply by Ricardo to explain comparative advantage involved England and Portugal. In this example, the two countries produce cloth and wine. However, Portugal is much efficient in the production of the two commodities compared to England. England needs 100 hours to produce a unit of cloth and 120 hours to produce a unit of wine. Portugal on the other hand requires 90 hours to produce unit of cloth and 80 hours to produce a unit of wine. In this case, England requires 100 hours to produce cloth, which can instead produce an incomplete unit of wine. Portugal can produce a unit of cloth with few hours compared to England. However, Portugal must(prenominal) forego the production of more units of wine in order to produce a single unit of cloth. Although Portugal has an absolute advantage in the production of cloth, England has a comparative advantage in the production of cloth. In this example, England has a comparative advantage in the