COMPARATIVE
ADVANTAGE
|
Country |
Wheat |
Wine |
|
. |
Cost Per Unit In Person-Hours |
Cost Per Unit In Person-Hours |
|
England |
15 |
30 |
|
Portugal |
10 |
15 |
Person-hours
(p-hours) available:
England: 270
Portugal: 180
|
Country |
Production & Consumption |
|
|
. |
Before Trade |
|
|
. |
Wheat |
Wine |
|
England |
8 |
5 |
|
Portugal |
9 |
6 |
|
TOTAL |
17 |
11 |
England:
8 wheat х 15 p-hours/wheat = 120 p-hours
5 wine x 30 p-hours/wine = 150 p-hours
TOTAL = 270 p-hours
Portugal:
9 wheat x 10 p-hours/wheat= 90 p-hours
6 wine x 15 p-hours/wine = 90 p-hours
TOTAL = 180 p-hours
|
Country |
Production after specialization |
|
|
. |
Wheat |
Wine |
|
England |
18 |
0 |
|
Portugal |
0 |
12 |
|
TOTAL |
18 |
12 |
(Why does Portugal specialize in
wine rather than wheat? Click here to find out.)
|
Country |
Consumption after TRADE |
|
|
. |
Wheat |
Wine |
|
England |
9 |
5 |
|
Portugal |
9 |
7 |
|
TOTAL |
18 |
12 |
Gains from specialization
and trade:
England: 1 extra unit of wheat
Portugal: 1 extra unit of wine
This example is borrowed from:
http://www.systemics.com/docs/ricardo/david.html
Click here for more
information on Ricardo’s theory of comparative advantage.