WebCT: ECON30631 Labour Economics (004510) - ECON30631 &LEC 2009-10 1st Sem (coursework) : Ricardo's Comparative Advantage Model
This page last changed on 27 Nov 2009 by msra7rh2.

Ricardo's Comaparative Advantage model:

 David Ricardo was an English political economist.(19 April 1772 - 11 September 1823  )

The example that David Ricardo used in his comparative advantage model was by looking at Portugal and England in the production of wine and cloth. In which Portugal might require 90 men to produce wine and 80 men to produce cloth, while England requires 100 men to produce wine and 90 men for cloth. Portugal is better at producing both goods but by concentrating its resource in producing wine and obtaining cloth from England both countries benefit. Comparative Advantage theory concentrates on the relative advantage gained by a country when it maximises its productivity capacity. (11)


The law of the comparative advantage model refers to the ability of a particular individual or group to produce at a lower opportunity cost than another group or individual.  The Ricardian trade model emphasizes relative differences in technology across commodities as the cause of differences among countries in comparative costs and in relative factor prices. Patterns of specialization are not exclusively exogenously determined but may also be influenced by endogenous variables such as savings, capital accumulation rates and patterns of investment in specialized human capital. Comparative advantage may also be created by investing in education and R&D, it does not only rely on natural resource advantage. (20^)^

Assumptions:  

There are fundamental assumptions on which the model of comparative advantage is based which do not hold true in a real life framework (29):

  • The model assumes a market which is perfectly competitive 
  • Assumptions that there is little government intervention 
  • Labour productivity is assumed fixed 
  • All workers are assumed identical 
  • Negligible transport costs 
  • Perfect mobility of factors of production within countries, immobility between countries.

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