Comparative Advantage and Corporate Social Responsibility Assignment

Comparative Advantage and Corporate Social Responsibility - Assignment Example To understand more about comparative advantage, the author will feature in an example. In country A, a worker using machinery produces 4 shirts and 4 skirts per hour while in country B which has less machinery, a worker produces 4 shirts and 2 skirts per hour. It is evident that the less efficient country has a comparative advantage in producing shirts. With the absence of trade, the opportunity cost per shirt is 2 skirts. Bearing in mind that the more efficient country has a 1:1 trade-off, the cost per shirt may reduce to as low as 1 skirt depending on the volume of trade. The more efficient country has a comparative advantage in skirts. It would, therefore, make economic sense if the country shifted its shirts production resources to produce more skirts. It would then trade them for shirts. In economics, the net benefits realized by each country are called the gains from trade. The idea of comparative advantage was first mentioned and developed in Adam Smith’s book The Wealt h of Nations. Here, he puts the theory as follows: if a foreign country can supply us with a commodity cheaper than when we ourselves can make it, it is better to buy it from them with gains realized from our own industry. This has to be employed or designed in a way that we have some advantage. David Ricardo, in his 1817 book, On the Principles of Political Economy and Taxation, investigated the advantages and alternatives as well as relative opportunity in an example involving Portugal and England. In his book, he noted that in Portugal, it was possible to produce both cloth and wine using less labor compared to producing the same quantities in England. He also noted that the relative costs met in producing those two goods were different in the two countries.