David Ricardo developed the principle of comparative advantage. Heckscher, Ohlin and Samuelson then later developed the theory. They all argued that all countries have different factor endowments of labour, land and capital inputs. Countries should be able to specialise in and export products that they can effectively produce. Comparative advantage dictates that international trade happens when there are differences in the price of production. World trade is the result of non-price competition between countries. The …
showed first 75 words of 1070 total

showed last 75 words of 1070 total
…important. Tariffs maintain links between domestic and international prices. If there were to be a change in supply and demand in would effect trade flows. Quotas remove the links between domestic and international prices. If a country imposes a quota it isolates itself from the rest of the world. If a restriction has to be placed a preference is mainly given to a tariff over import quotas in order to retain the function of prices.