Unit 2: Economic Theorists: David Ricardo

Question 1

David Ricardo, born and died

Answer 1

Born: April 18, 1772
Died: Sept 11, 1823

Question 2

Ricardo

Answer 2

• Best known for theory on wages/profits, labour theory of value, comparative advantage, and theory of rents, and DIMINISHING MARGINAL RETURNS

Question 3

Comparative advantage

Answer 3

Nations can gain international trade advantage when they focus on making goods that produce lowest opportunity costs as compared to other nations

Question 4

Ricardo suggested…

Answer 4

A good’s value comes from labour hours invested in its production

Question 5

Ricardo’s theories:

Answer 5

• Comparative advantage
• Economic rents
• Labour theory of value

Question 6

Comparative advantage theory

Answer 6

• Economy’s ability to make good or service at lower opportunity cost than it’s trading partners
• argued that countries can benefit from international trade by specializing good production, for which they have a relatively lover opportunity cost, even if they don’t have an absolute advantage in production of any particular good.

Question 7

Labour theory of value

Answer 7

Value of a good can be measured by labour that it took to produce it. Cause shouldn’t be based on compensation paid for labor, but for TOTAL COST OF PRODUCTION. Ex (Table takes 2 hours to make, and a chair takes 1: table is twice as costly than chair)

Question 8

Theory of rents

Answer 8

Benefits that accrue to the owners of assets , solely due to ownership, rather than contribution to any productive activity

Question 9

Richardian equivalence

Answer 9

Weather gov finances it’s expenditures, thru immediate taxation or through borrowing and deficit spending, the results for the economy will be equivalent. Rational, tax payers will account for any expected, increase in future taxation to finance current deficits by saving an amount, equivalent to current deficit spending, net change to total spending will be zero

Question 10

If gov engages in deficit spending to boost economy

Answer 10

Then, private spending will fall by equivalent amount of people, save more, the net effect on aggregate economy will be a wash

Question 11

Iron law of wages theory

Answer 11

• What times to increase or improve workers wages are pointless, because we just overtime would return to her hover over subsistence level

Question 12

Ricardo’s economic contributions:

Answer 12

• Law of diminishing returns
• Comparative advantage theory
• theory of rents
• Labour theory of value
• iron Law of wages of theory