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The Ricardian theory of international trade, developed by David Ricardo in the early 19th century, provides a foundational explanation for why nations engage in trade and how they derive benefits from it. This theory is based on the principle of comparative advantage, which emphasizes that even if one country is less efficient in producing all goods compared to another country, it can still gain from trade by specializing in the production of goods in which it has the lowest opportunity cost. In the Ricardian framework, the concept of labor productivity plays a central role. Each nation possesses a finite amount of resources, primarily labor, which it allocates to the production of goods. Ricardo argued that the opportunity cost of producing a good—defined as the quantity of another good that must be forgone—determines comparative advantage. When countries specialize in producing goods for which they have the lowest opportunity cost and then trade with each other, both countries can achieve consumption levels higher than what would have been possible in autarky, or self-sufficiency. To illustrate, consider two countries, Country A and Country B, and two ______ _______ _______ _____ _________ _________ __________ ________ __________ _______.
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