From: J. R. Molloy (jr@shasta.com)
Date: Mon Aug 16 1999 - 18:54:53 MDT
From: Brent Allsop <allsop@fc.hp.com>
>What is "the law of comparative advantage?" or where
>can I find out more about it?
The law of comparative advantage shows why the international division of
labour is beneficial to all. It states that every country can improve
its welfare by specialising in the most efficient lines of production
open to them, those in which they have a comparative advantage. The most
efficient lines of production are those in which a country's
productivity relative to others is greatest. This is commonly
misunderstood to mean those lines of production in which a country is
more efficient than all others. If this were true then some countries
could conceivably have a comparative advantage in nothing, whereas, in
reality every country has a comparative advantage in something, as they
must be more efficient in some lines of production than others. For
example a very inefficient country in a two-country two-commodity
universe may be half as productive as the other country in producing one
commodity and only a quarter as productive in the other. Its comparative
advantage would lie in producing the commodity in which it had half the
productivity of the other country. The law of comparative advantage
means that even a country least efficient at producing everything will
benefit from free trade. This is because it allows the inefficient
country to specialise in what it is relatively poor at producing rather
than in what it is *very* poor at producing.
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> - < check: www.libertarian.org/LA/balance.html
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