Comparative Cost and Factor Endowments: Ricardo and Ohlin

The concept (law, principle) of comparative advantage is due to Ricardo (1817, Ch. 7) — the term is also found in Ricardo (1817, Ch. 19, p. 175), cf. Ruffin (2002, p. 743). The expression ‘what a country can do most cheaply’ needed careful examination, and it was in analysing this idea more sharply that Ricardo enunciated the principle (term) of comparative advantage. The Ricardian term means the ability to produce a good at lower cost (relative to other goods), compared with another country. With perfect market competition relative costs are also relative autarchy prices, and the law of comparative advantage (cost) says that a country exports (imports) the good with the low (high) relative autarchy price. This Law of Comparative Costs will always remain a fundamental principle of economics and international trade.