In his treatise, “On the Principles of Political Economy and Taxation” David Ric

Question

In his treatise, “On the Principles of Political Economy and Taxation” David Ricardo argued that:

Select one:

a. Only specialization benefits some trading partners, including those that may be considered as inefficient

b. Specialization and free trade benefit all trading partners, even those that may be relatively inefficient

c. Only free trade benefits some trading partners, including those that may be considered as efficient

d. Specialization and free trade only benefit some trading partners, including those that may be considered as efficient.

Explanation / Answer

ANSWER:- C

On the principles of political economy and taxation, Ricardo made case for free trade on basis of comparative advantage. Ricardo tried to show that removal of tariffs would lead to a net welfare gain- the gain of consumers outweighing the loss of producers.

Advantages-

1) The theory of comparative advantage- This explains that by specialising in goods where countries have a lower opportunity cost, There can be an increase in economic welfare for all countries.

2) Efficiency- With free trade, domestic firms face competition from abroad and therefore there will be more incentive to cut costs and increase efficiency.

3) Price- Local firms now have to compete against firms from all across the world, especially online. Competition is a win for consumers who can enjoy the lowest of prices.

4) Consumption- Free trade enables an increase in consumption as countries can consume combination of goods outside their production possibility curve.

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