... in with David Ricardo's Law of Comparative Advantage. This law arises because of differences in factors of production (land, labour, capital, enterprise): as countries differ in both the quality and quantity of the resources at their disposal, a country may lack the appropriate factor endowment to produce desired goods. Free trade enables these goods to be obtained. Ricardo's law of Comparative Advantage states that, even if one country has an absolute advantage in producing all goods over another, each country will gain from trade providing each specialises in the production of that good in which it has a comparative advantage, or lower opportunity cost, in producing. If a country produces to its comparative advantage, the LRASC (long run average supply curve) will move to the right. It will also lead to reduced costs of production as nations move towards economies of scale. As illustrated above, reducing protection will increase the technical ...

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