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Why Countries Trade: The Theory of Comparative Advantage
Debaere, Peter Technical Note G-0594 / Published August 10, 2007 / 6 pages.
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Product Overview

The theory of comparative advantage is a surprisingly common-sense idea, but it is often misunderstood. In this technical note the basic theory of comparative advantage is presented with an example that drives home its logic when there are technological differences between countries. In addition, we look at some extensions that specify other sources of comparative advantage, as well as some of the imitations of the theories.


Learning Objectives

The learning objectives are to refresh key concepts and tools from microeconomics and macroeconomics; emphasize the role of economics in the MBA curriculum; and show how analyzing economic agents as maximizers of profit and/or utility deepens one's understanding of the environment of the firm.

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  • Overview

    The theory of comparative advantage is a surprisingly common-sense idea, but it is often misunderstood. In this technical note the basic theory of comparative advantage is presented with an example that drives home its logic when there are technological differences between countries. In addition, we look at some extensions that specify other sources of comparative advantage, as well as some of the imitations of the theories.

  • Learning Objectives

    Learning Objectives

    The learning objectives are to refresh key concepts and tools from microeconomics and macroeconomics; emphasize the role of economics in the MBA curriculum; and show how analyzing economic agents as maximizers of profit and/or utility deepens one's understanding of the environment of the firm.