The Basic Geometry of Comparative Advantage and the Gains from Trade
Two of the basic questions that the theory of international trade has to answer are what determines the pattern of trade and who gains from trade. Economics does have answers to these questions — ones that go back more than 150 years — in the theories of comparative advantage and the gains from trade. These theories, formulated around 1815, are usually connected with the name of David Ricardo.1 The theory of comparative advantage or, as it is sometimes called, the theory of comparative costs, is one of the oldest, still unchallenged theories of economics. Before exploring the basic theory of comparative advantage and the gains from trade, which is usually done geometrically, we shall take a brief look at its historical background.
Unable to display preview. Download preview PDF.