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Transcript of David Ricardo
The Napoleonic Wars and successive years of poor crop growth impacted this further Ricardo's Theories High taxes and tariffs between trade.
No trade agreements or specialization Three Classes Ricardo identified three socioeconomic classes in Britain
The working class
The industrialist class
The aristocratic class Working class Industrialist class Aristocratic class Land owners
Did not work
Best position to compete effectively against other classes Predominately poor
Worked hard in the factories or farming while earning small wages Owned the factories
A class with new money
Did not have any parliamentary representation The Theory of comparative advantage David Ricardo was the first person to realize that when a country can produce both maple syrup and oranges more efficiently than another country there remains a comparative advantage to be shared when both countries trade the products they can produce most efficiently. Absolute Advantage The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.
An example of this would be if Canada produced maple syrup better than Mexico, but Mexico can produce more oranges.
It is best for both countries only to produce what they are better at at trade items. This is called Absolute Advantage. David Ricardo was a advocate of free trade because of comparative advantage. During the time when Ricardo was alive Britain imposed high tariffs on imports to discourage trade with other countries. This often protected the landlords from having too much money and hurt the workers and industrialists. Comparative advantage, Ricardo believed, ensured that international trade would bring benefits for all countries; his theory remains the foundation of the economic case for free trade today. According to Ricardo, population growth equals the need for more food/agriculture. The need for more food equals the need for more land.
This will cause the cost of food to rise, along with salaries and rent. Capitalists will have to raise wages to meet the rising subsistence wages.
The capitalists are in a tight fix. Both wages and rent have risen.
The capitalists lose profit, the land owners gain Rent Theory Ricardo's Three Theories Distribution of national income (Three Classes)
Theory of differential land rent
Comparative advantage Theory As part of his theory of distribution, he concluded that profits vary inversely with wages, which rise or fall in line with the cost of necessities. Ricardo also determined that rent tends to increase as population grows, owing to the higher costs of cultivating more food for the larger population. "Nothing contributes so much to the prosperity and happiness of a country as high profits." - David Ricardo Thanks For Watching!