I understand that the mutual advantages derived from trade given unequally two individuals, who can produce goods A and B in different amounts, where 1 is more proficient than the other in producing both are due to the fact that the substitution ratios, or opportunity costs for producing 1 unit of good expressed in terms of the other are unequal.
What happens however, when the first condition, that one of the producers is superior in the production of both goods is met, but that the substitution ratio between both goods for both producers is the same? E.g. applying 1 unit of labour, Producer 1 can produce 3A and 6B, while Producer 2 can produce 2A and 4B.
While this scenario may be somewhat unlikely, especially as we increase the number of goods and people in our example, necessarily having to incorporate economic calculation, does such a case nevertheless embody an exceptional case of Ricardo's theorem, where mutual advantages from trade and specialisation do not arise, because not only are both producers unequally endowed, they are so according to the same ratio? I must confess, for me it seems like the answer "yes" is the case, although perhaps someone more knowledgeable can point out something obvious I've missed.
Thanks in advance.
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
So...any ideas?
yes it is a special case; i don't see any practical consequence of significance....
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Couldn't a marriage where the husband is stronger than the wife be an example of this kind of arrangement?
I would say that this highlights the advantages of the division of labor. The stronger worker could focus on producing A & B, and the weaker one could, say, collect and cook all the food to keep the stronger worker sustained and maximize the time he can spend producing A & B. This would maximize the total supply of A & B.
You have introduced a third good C, in which 'the wife' (or stay at home husband) has their comparative advantage.
There's nothing wrong with this, I'm just pointing out what you are doing.
I agree. It is a special case and it proves that in a totally uniform world in which people are equally endowed, trade makes no sense, and there would be a war of all against all.
"I agree. It is a special case and it proves that in a totally uniform world in which people are equally endowed, trade makes no sense, and there would be a war of all against all."
Of course that is true as well, but it is different to the case I have highlighted, whereby the two individuals are not uniform, but unequally endowed by a factor 2 in every regard. I do grant nirgraham's point however, that this scenario probably does not have that much empirical relevance, given that the world is not populated by people who are twice or n times as good at everybody else at everything. To a limted extent, one could crudely consider this to be the type of situation faced between 2 individuals who are of the same trade but of different abillities at all capacities in that trade.
In certain cases, concerning the production of a very specific set of goods, it may rule out increased returns from trade and cooperation however between 2 individuals. Even if such individuals exist, I don't think the consequences would necessarily lead to war, since the division of labour is composed more as a web of mutually beneficial interactions, as opposed to exclusively paired trades.
If we start from an already unlikely assumption (perfectly proportional skills, no non-linear effects, etc.), why not go further and assume that aggression-relevant skills of both individuals are also proportional in the same ratio? If we stretch it even further, as the first individual is more efficient in both production and aggression, it does not follow automatically that he will prefer aggression to production.
Also, trade becomes benefitial when you take into account all kinds of random fluctuations and accidents - bad harvest, loss to fire, sickness, etc. - even between individuals of perfectly equal abilities.
Also, productivity (almost) always depends on "land" and capital in addition to "labor". So even having completely equal skills and abilities, but owning different land and capital will lead to different productivity and thus to trade.
Also, even in absence of land and capital factors, there is at least one benefit of specialization - training of skills over time. Thus, starting from fully equal abilities, individuals may practice some skills more than others, leading to comparative advantages and trade.
All in all, the situation of having even two people of perfectly proportional productivities in even two activities is practically impossible. I am sure everyone on the thread knows this, but why not to make this claim explicit :)