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Modern Economics - Essay Example

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The following essay concerns the peculiarities of modern economics. According to the text, the notion of comparative advantage has become one of the fundamental aspects of modern economics. Hence, two major comparative advantage models have emerged: the Ricardian model and the Heckscher-Ohlin Model…
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Modern Economics
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Download file to see previous pages The basic assumptions of both of these models is that even if a country can produce goods at a cheaper cost than another country, the most effective means of production will be to concentrate on the goods they produce to the greatest advantage. The understanding is that by exporting these goods and importing goods that are the key product of other countries the nation will gain its greatest productive wealth. One of the most recent remedies of this situation is New Trade Theory. This theoretical perspective shifts the focus from the comparative advantage paradigm to one more internally focused. While comparative advantage largely neglected nascent industries in favour of established industries of greatest advantage, new trade theory considers the importance of establishing networks or clusters among industries. Through this process the country is encouraged to impose tariffs as a means of allowing emerging clusters of industries to grow, as the understanding is that these clusters will ultimately lead to a significant competitive advantage.
The notion of free trade has long been a notion that has sounded good among individuals, but when considered both in practice and theory has a number of prominent drawbacks. Indeed, there are a number of arguments justifying exceptions to free trade. As noted above the establishment of nascent industries oftentimes necessitates tariffs be implemented. Another reason against free trade is the general support of industry in the country, as tariffs protect against foreign competition. ...Download file to see next pagesRead More
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