A Fable to Explain David Ricardo's Theory of Comparative Advantage

"We all have a good intuitive understanding of the power of trade. At the simplest level, if you have something I want and if I have something you want, and we trade we each other, we're both better off.

So if I can knit and you can't, and if you can grow corn and I can't, it obviously makes sense for me to swap one of my sweaters for some of your corn. You and I might argue about the "price"—how many ears of corn one of my gorgeous sweaters is worth—but once the deal is done, you're warmer and I'm on my way to being less hungry.

Trade seems simple.

Almost two hundred years ago, David Ricardo discovered something not so simple about trade that came to be called comparative advantage. Here is a story that will let us explore the mysteries of trade together. ."

read Russell Roberts' full essay at: Liberty Fund