Is Free Trade Always Better? Comparative Advantage Explained

If a country is good at producing everything. Why should it bother with trade? Is trade with a country that’s not as efficient or advanced as your own beneficial? The short answer is YES, it is beneficial and we should bother with free trade and free trade agreements. Economist David Ricardo proved this using the concept of comparative advantage. Essentially, even if a country is bad at producing everything, it will still be better at producing something it’s bad at. And should it should specialize in this industry and trade with other countries. The same goes for efficient countries. While these countries are good at everything, it will still be better at producing something it is better at. And it should specialize in these industries as well. Through trade both countries will produce more goods for consumption. However, that doesn’t mean FTA’s are good for everyone. Because as a result of specialization, workers in industries that do not have comparative advantages will suffer due to layoffs and lack of business. Therefore it is important for governments to find ways to retrain these workers so that they may find work elsewhere.
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00:00 - Intro
00:07 - Simple model of free trade
00:36 - David Ricardo argues for free trade
00:49 - Example of absolute advantage
01:11 - Even so comparative advantage exists - opportunity cost
02:25 - Proof that trade makes both parties better off
04:03 - But free trade leaves some people behind
#FreeTrade #ComparativeAdvantage #FTA #Economics #AbsoluteAdvantage #Trade
BG Music: Original Music "Curiosity's afoot" by Stick Science

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