Talking About Comparative Advantage Go all the way back to the History of Econom

Question

Talking About Comparative Advantage Go all the way back to the History of Economics Page from Module One. On the slide that shows quotes from Adam Smith, there is an Adam Smith quote regarding wine. Explain his comment in terms of comparative advantage, making sure to define comparative advantage and to identify an international trade pattern he would likely have endorsed with his product example. "By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland? Adan SmHh

Explanation / Answer

In the above quote Adam Smith is not at all talking about comparative advantage.The comparative advantage was introduced by Torrens, Ricardo and mill.He endorsed an international trade based on absolute advantage.In the above example he says if countries can focus on absolute advantage they can both gain.As he mentions before the same comment '' it is the maximum of every prudent master of family never to attempt to make at home what it will cost him more to make than buy.The cobbler does not attempt to make his own shoes but buys them of the shoemaker''.

According to comparative advantage theory the nation should specialise in the production(even if it has absolute disadvantage in production of both commodities) of the commodity in which it's absolute disadvantage is smaller(i.e has comparative advantage ) and import the commodity in which it's absolute disadvantage is greater(commodity of its comparative disadvantage)

He endorsed trade based on absolute advantage.He would like Scotland to import foreign wine which is as good as produced in Scotland but is much cheap.He would like Scotland to focus on the commodities in which it's absolute advantage is greater

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