Read on Twitter
Economists are like politicians, each of us can interpret a concept, a market proble in our own way, and this makes Economic theories more complex and people feel it's all hoax...
The reason behind it is the fact that Econ is a behavioural science, ie it deals with transactions between human beings whose behaviour is nothing but predictable...so Economics have no such thing as a universal law like say, the laws of thermodynamics +
But there are certain laws in Economics which is accepted in economic discussion almost universally... the prominent one is the Law of Comparative Advantage, it's called the Princess among Economic theories.
It's accepted as the basis of trade as we know it, by almost everyone +
It's accepted as the basis of trade as we know it, by almost everyone +
It's a 200 year old theory by David Ricardo, it holds true albeit the progress in human endeavors and science.. The theory is an criticism of Adam Smith's classical theory of trade, called Absolute Advantage theory..
And what's exactly the law of comparative advantage? +
And what's exactly the law of comparative advantage? +
Let's first read the words of Ricardo himself..
"It is quite as important to the happiness of mankind, that our enjoyments should be increased by the better dis-
tribution of labour, by each country, producing those commodities for which by its situation, +
"It is quite as important to the happiness of mankind, that our enjoyments should be increased by the better dis-
tribution of labour, by each country, producing those commodities for which by its situation, +
its climate, and its
other natural or artificial advantages, it is adapted, and by their exchanging them for the commodities of other
countries, as that they should be augmented by a rise in the rate of profits....
What was that?? +
other natural or artificial advantages, it is adapted, and by their exchanging them for the commodities of other
countries, as that they should be augmented by a rise in the rate of profits....
What was that?? +
Read it once more, you will get the drift.
It simply states that a country must specialise in the production of goods in which it have comparative adavage to produce..
Comparative advantage may be due to the country's climate, and its
other natural or artificial advantages..
It simply states that a country must specialise in the production of goods in which it have comparative adavage to produce..
Comparative advantage may be due to the country's climate, and its
other natural or artificial advantages..
Further, a country's people's enjoyment increases as we exchange our goods with goods from other countries... which goods? That goods we don't have any comparative advantage..
Come again, what's that? +
Come again, what's that? +
Think of Kerala and USA, due to climatic and labour reasons, Kerala have comparative advantage in the production of spices and US in the production of say, Apples.
Should Kerala produce Apples? Or USA spices?
What will be beneficial to the people in these countries? +
Should Kerala produce Apples? Or USA spices?
What will be beneficial to the people in these countries? +
Kerala can produce Apples, and USA spices by artificially creating the environmental requirements... But is that a rational decision? +
Now as we are in 2020, a nation like India can produce almost everything... but will that provide maximum "enjoyment" to her citizens? Will that be economical? Will that be beneficial for her economy? +
, end of thread...
