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The document summarizes David Ricardo's theory of comparative advantage. [1] Ricardo formalized the idea in 1817 that countries can benefit from trade even if one country is more productive in all areas. [2] His theory of comparative advantage showed that countries should specialize in what they are relatively better at producing. [3] Ricardo used a numerical example to illustrate this theory and showed that total production increases if countries specialize according to their comparative advantages and trade.
The document summarizes David Ricardo's theory of comparative advantage. [1] Ricardo formalized the idea in 1817 that countries can benefit from trade even if one country is more productive …