Answer to Question #285273 in Economics for Anum nihal

Question

In what way was Ricardo’s law of comparative advantage superior to Smith’s theory of absolute advantage? How do gains from trade arise with comparative advantage?

Answer 1

Ricardo's law is superior from Smith's theory because it justifies that trade is still possible between two countries even if a country does dont have absolute advantage in anything.

Countries and people have different costs of production or (to put it differently) different abilities in producing goods. They can take advantage of their differences in order to make themselves better off. When they do this, they experience gains from trade.