Editing Comparative advantage (section)

===Ricardo's example===
[[File:Ricardo example of comparative advantage.svg|thumb|upright=1.3|Graph illustrating Ricardo's example:<br />In case I (diamonds), each country spends 3600 hours to produce a mixture of cloth and wine.<br />In case II (squares), each country specializes in its comparative advantage, resulting in greater total output.]]
In a famous example, Ricardo considers a [[world economy]] consisting of two countries, [[Portugal]] and [[England]], each producing two goods of identical quality. In Portugal, the ''[[A priori and a posteriori|a priori]]'' more efficient country, it is possible to produce [[wine]] and [[cloth]] with less labor than it would take to produce the same quantities in England. However, the relative costs or ranking of cost of producing those two goods differ between the countries.

{| class="wikitable"
|+ Hours of work necessary to produce one unit
|-
! {{diagonal split header|Country|Produce}}
! scope="col" | Cloth
! scope="col" | Wine
! scope="col" | Total
|-
! scope="row" | England
|100||120||220
|-
! scope="row" | Portugal
|90||80||170
|}

In this illustration, England could commit 100 hours of labor to produce one unit of cloth, or produce {{sfrac|5|6}} units of wine. Meanwhile, in comparison, Portugal could commit 100 hours of labor to produce {{sfrac|10|9}} units of cloth, or produce {{sfrac|10|8}} units of wine. Portugal possesses an ''absolute advantage'' in producing both cloth and wine due to more produced per hour (since {{sfrac|10|9}} > 1). If the capital and labour were mobile, both wine and cloth should be made in Portugal, with the capital and labour of England removed there.<ref>{{cite book |last1=Ricardo |first1=David |author1-link=David Ricardo |title=On the Principles of Political Economy and Taxation |date=1817 |publisher=J. Murray |pages=160–162 |quote=It would undoubtedly be advantageous to the capitalists of England, and to the consumers in both countries, that under such circumstances, the wine and the cloth should both be made in Portugal, and therefore that the capital and labour of England employed in making cloth, should be removed to Portugal for that purpose}}</ref> If they were not mobile, as Ricardo believed them to be generally, then England's ''comparative advantage'' (due to lower opportunity cost) in producing cloth means that it has an incentive to produce more of that good which is relatively cheaper for them to produce than the other—assuming they have an advantageous opportunity to trade in the marketplace for the other more difficult to produce good.
{{Stack begin}}
{| class="wikitable"
! {{diagonal split header|Country|Produce}}!!scope="col"|Cloth!!scope="col"|Wine!!scope="col"|Saved
|-
!scope="row"|England
|200||–||20
|-
!scope="row"|Portugal
|–||160||10
|}
{{Stack end}}
In the absence of trade, England requires 220 hours of work to both produce and consume one unit each of cloth and wine while Portugal requires 170 hours of work to produce and consume the same quantities. England is more efficient at producing cloth than wine, and Portugal is more efficient at producing wine than cloth. So, if each country specializes in the good for which it has a comparative advantage, then the global production of both goods increases, for England can spend 220 labor hours to produce 2.2 units of cloth while Portugal can spend 170 hours to produce 2.125 units of wine. Moreover, if both countries specialize in the above manner and England trades a unit of its cloth for {{sfrac|5|6}} to {{sfrac|9|8}} units of Portugal's wine, then both countries can consume at least a unit each of cloth and wine, with 0 to 0.2 units of cloth and 0 to 0.125 units of wine remaining in each respective country to be consumed or exported. Consequently, both England and Portugal can consume more wine and cloth under free trade than in [[autarky]].