3.3.2 Theory of comparative advantage
Ricardo showed that both trading nations can benefit from trade even when one of those nations has an absolute advantage in the production of two or more commodities. This can be stated another way by saying that a nation having absolute disadvantages in the production of two goods with respect to another nation has a comparative or relative advantage in the production of the good in which its absolute disadvantage is less. Confusing? Read the sentence again, slowly and carefully, and then do the following Activity.
Activity 3.1
Work through the example of Ghana and South Korea in your textbook (Hill 2005, pp. 151-152) to help remove any confusion. Write your own brief definition of the theory of comparative advantage.
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