Develop the rationale behind the theory of comparative advantage. How does this serve as a basis for free trade policies?

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The Answer is The theory of comparative advantage was first introduced by economist David Ricardo in the early 19th century. The rationale behind this theory is that countries should specialize in producing goods and services in which they have a comparative advantage, meaning they can produce at a lower opportunity cost than other countries. This allows for more efficient allocation of resources and leads to increased overall production and economic welfare.

The theory of comparative advantage serves as a basis for free trade policies because it demonstrates the benefits of allowing countries to specialize in the production of goods and services in which they have a comparative advantage. By doing so, countries can trade with one another, exchanging the goods and services they produce most efficiently for those produced more efficiently by other countries. This leads to increased global efficiency and overall economic welfare.

Free trade policies are based on the idea that by removing barriers to trade, such as tariffs and quotas, countries can take advantage of their comparative advantages and benefit from the increased efficiency and productivity that comes from specialization and trade. This can lead to lower prices for consumers, increased competition, and a more efficient allocation of resources on a global scale.

In summary, the theory of comparative advantage provides a rationale for free trade policies by demonstrating the benefits of allowing countries to specialize in the production of goods and services in which they have a comparative advantage. This leads to increased efficiency, productivity, and economic welfare on a global scale.

Develop the Rationale Behind the Theory of Comparative Advantage