1. DJ, 2002 MAIR, IPE David Ricardo Comparative Advantage

2. DJ, 2002 Introduction z Differences between absolute and comparative advantage ySmith and Ricardo yInductive and deductive ySpecific and general

3. DJ, 2002 Comparative Advantage Wine Cloth Portugal Wine Cloth England 30 100 0 E1E1 30 21 120 1500 E2E2 80 50

4. DJ, 2002 Opportunity Costs z England y? W in terms of Cl;? Cl in terms of W zPortugal y? W in terms of Cl;? Cl in terms of W

5. DJ, 2002 Specialisation z England should produce Cloth z Portugal should produce Wine z BUT yWhat if terms of trade are 10Cl for 2W? yWhat if terms of trade are 10Cl for 9W?

6. DJ, 2002 Terms of Trade z For both England and Portugal to gain from trade, the terms of trade must be between y 10Cl for 3W and y 10Cl for 8W

7. DJ, 2002 Gains from Trade z Before specialisation y England produced 21W and 30Cl y Portugal produced 80W and 50Cl y Total 1 101W and 80Cl z After specialisation y England produced 100Cl y Portugal produced 120W y Total 2 120W100Cl y Total 2 > Total 1