User:HaEr48/Draft:World Trade Organization

Economic rationale
Modern theory of international trade is based on David Ricardo's theory comparative advantage (published in 1817), which was an improvement over the previous thory of absolute advantage by Adam Smith. Smith's theory held that if a country A can produce product X more cheaply and with better quality than another country, while country B has a similar advantage regarding product Y, then both countries would be better off if each country produce what it is better at, and then trade with each other, compared to if both countries try to build their own A and B. Ricardo's theory held that such trade is still advantageous even if one of the countries is better than the other at all products. Ricardo demonstrated this arithmetically using an example.