Why a country that's worse at everything still gains from trade: Ricardo's comparative advantage
30seconds
How can a country that is worse at everything still gain from trade? Ricardo's 1817 England-and-Portugal example says the answer is not who is faster, but what each hour costs you in the other good.
Slide each country's labour between cloth and wine, and watch the world total beat the no-trade baseline from the very same hours of work. Then specialise the wrong way round and watch it fall. You will see where comparative advantage comes from, and where the simple model stops.
Deep dive · 4 min
More in Economics
View all →
Why two ice-cream vendors end up side by side: Hotelling's beach
Two ice-cream vendors share a long beach, and every swimmer walks to the nearer cart. Where should each one park? Drag the carts and watch the dividing line…
Why a free shortcut can make everyone's commute longer: Braess's paradox
Build a brand-new road and every commute gets longer. In a town of 4,000 drivers, two routes each take 65 minutes. Add a free shortcut and each driver…
Why the auction winner so often overpays: the winner's curse
Why does the winner of an auction so often go home poorer? When a prize is worth the same to everyone, each bidder only has a noisy estimate, and winning means…
Why mild preferences can build a segregated town: Schelling's chequerboard
Nobody in this town wants it split into blue and orange districts. Each household only asks that a few of its neighbours look like it. Yet run the rule and the…
Why good used cars vanish from the market: Akerlof's lemons
Why can a market of willing buyers and sellers fall apart? In 1970 the economist George Akerlof showed that when only the seller knows a used car's quality…
Why rival ice-cream carts end up side by side: Hotelling's beach
Put two ice-cream carts on a long beach and each one is tempted to creep toward the other, because standing next to a rival steals customers without losing…