Theory Of Comparative Advantage

Comparative Advantage Theory Historically, the country trades for hundreds of years in order to raise the profit, or because there is not enough resources (land, labor, and capital) to satisfy all the needs of the consumer It was. For example, Japan has a highly skilled workforce to manufacture automobiles and electric equipment using state-of-the-art equipment, but there is no unique field in Japan. Saudi Arabia supplies a lot of petroleum, but funds for construction of automobiles and electric equipments are insufficient.

Comparative Advantage Theory: - Comparative Advantage Theory helps to produce only the lowest opportunity cost items compared to other countries, while encouraging importing goods at higher opportunity costs compared to other countries We stipulate. It is high. In the 19th century, David Ricardo showed advantages of comparative advantage using numerical examples. Prior to this, the initial logic associated with free trade may be beneficial based on absolute superiority. In his example, Ricardo showed there are two countries in England and Portugal. If the UK is good at producing low cost fabrics and the same good production cost is higher than Portugal, Portugal is good at producing wine and the cost of winemaking is higher than that of England.

Please pay attention to how to improve Ricardo's theory of comparative advantage and Smith's theory of absolute superiority. According to the Investment Encyclopedia, the comparative advantage is the economic law that proves that protectionism in free trade (then Mercantilism at the time) is unnecessary. A comparative advantage arises when countries can produce goods and services at lower opportunity costs. This means that a country can produce relatively cheap products than other countries.

According to the author, he links the competitive advantage to the comparative advantage theory. According to his theory, he said that the theory of comparative advantage suffers the same weak points as the company's neoclassical theory. Therefore, the authors believe that the concept of competitive advantage gives strategic and organizational explanatory power. The company's success in the market depends on the company's organization, department, and its interaction. They are trying to build a competitive advantage by reducing the superiority of the organization (Bagnoli et al., 2003).