David Ricardo

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The concept of comparative advantage also involves the concept of opportunity cort. An opportunhty cost is equal to the potential gain one could achieve from applying an asset or factor of production to the creation of one product as opposed to using the asset or factor of production to create another product.

The concept of an opportunity cost is easily understood when one considers alternative income generating opportunities. There may be reasons other than income to pursue the opportunity associated with the lower return; however, there is an opportunity cost associated with such a decision. The opportunity cost in such a case is the difference between the gains associated with the two opportunities.

The concept of opportunity cost is somewhat less easily understood when "gain" is defined as cost minimization. If an asset or factor of production can be applied to the creation of two products that are characterized by differing amounts of the use of an asset or a factor of production required in creating each product, an opportunity cost exists that is the difference in the costs required to create the two products.

An opposing explanation for the loss of manufacturing jobs in the United States relies on the theory of comparative advantage as the causal factor. The law of comparative advantage holds that mutually advantageous trade between countries will always be available, because trade patterns will be based on relative prices, as opposed to absolute prices (the theory of absolute advantage, wherein mutually advantageous trade between countries might not always be possible). The reasoning behind the law of comparative advantage is that no single country can have comparative advantage in all commodities.

The theory of comparative advantage has provided the primary theoretical underpinning for the pursuit of economic globalization in the current day. Initially, the theory was based on labor-cost differentials. Today, it is recognized that both supply and demand factors are at work in the determination of relative prices that establish a basis for a mutually advantageous exchange between countries. In spite of significant changes in economic thought since the eighteenth century, the theory of comparative advantage, `ccording to its proponents, still stands as an example of sound economic reasoning. Barriers to trade are obstacles that prevent goods and services from moving freely between countries. Most trade barriers are imposed by national governments, although they are most often imposed at the insistence of or with the support of domestic industry and labor organizations. The major formal barriers to international trade are tariffs and quotas. A tariff is an import tax. It is designed to restrict the flow of goods into a country, by causing them to be too expensive to compete with domestically produced goods. A quota also seeks to restrict the flow of goods into a country. It does so through a direct restriction on the number of items that may be imported, however, as opposed to an attempt to price the goods out of the market.

Although Ricardo and Mal

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