"Gold, on the contrary, though of little use compared with air or water, will exchange for a great quantity of other goods."

-David Ricardo




David Rico_david_ricardo.gifardo
1772-1823

David Ricardo was born April 19, 1772 and lived until September 11, 1823. Ricardo was an English economist, along with belonging to the Classical group of economists. Through his life, Ricardo served as a member of Parliament and was a businessman/financier. By the end of his life, he was very wealthy. David Ricardo joined his father working in the London Stock Exchange. After marriage and converting to Christianity, Ricardo was forced by his father to start his own business. After making a substantial amount of money, David focused his time into literature, mathematics, and science.

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Adam Smith's Wealth of Nations
After reading Adam Smith’s Wealth of Nations, Ricardo turned his focus to economics. Ricardo wrote a series of letters involving inflation of gold in England. After investigating Ricardo’s claims, the Bullion Committee confirmed the increased inflation, which led to a repeal of the Bank Restriction Act. By his thirties, David Ricardo had made policy impact through economics. At forty-two, Ricardo retired from business and moved to Gloucestershire. During his final years, Ricardo spent time publishing evidence against Corn Law legislation passed during the early 1800s. He published his Essay on the Influence of a Low Price of Corn on the Profits of Stock to go against another increase in restrictions of the Corn Laws in 1815. The new legislation would give more benefit to the landowners and upper class, at an extreme expense to the working class. Ricardo spent some time focusing on population growth and its effects on income, profits, rent, and capital formation. He published the Principles of Political Economy and Taxation in 1817, which discusses his concerns with population growth.


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David Ricardo is most famous in economics because of his theory of Comparative Advantage. Included in his Principles of Political Economy and Taxation, Ricardo explains comparative advantage with an example of Portuguese wine and British cloth. Portugal has an advantage in climate to make wine at a cheaper cost, and England has an advantage of making cloth, also because of climate. For each country to trade instead of making both goods, costs would decrease and consumption of the two goods would increase. Comparative advantage deals with free trade between two countries. If country X has an advantage in making good A, and country Y has an advantage in making good B, then the two countries should make the respective goods and trade with each other.
Country X can produce either 10 units of good A or 10 units of good B. Country Y can produce 4 units of Good A or 8 units of good B. If both countries decide to focus on one good, they would have to give up the other good. However, comparative advantage states if the two countries would trade, each country could still have both goods with less opportunity costs. Country X produces at 1 unit of good B versus 1 unit of good A. Country Y produces at 2 units of good B to 1 unit of good A ( 8 / 4 = 2). Since country X has a lower opportunity cost to produce good B, country X has the comparative advantage of good B.
Country X produces 1 unit of good A to 1 unit of good B. Country Y produces .5 ( 4 / 8 = .5) units of good A to 1 unit of good B. In this case, country Y should produce good A because of a lower opportunity cost. This example depicts Ricardo’s theory of comparative advantage.
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David Ricardo also greatly influenced the theory of dim
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Ricardo's most influential work
inishing returns. Diminishing returns is when a factor of production is added until output starts to fall. A simple example is labor versus the amount of televisions produced. In this example, as labor goes up, the change in output to labor increases up to the sixth laborer. Diminishing returns maximizes at 11 for the s

ixth worker, and then diminishing returns starts to drop to 7, 5, and then ending on two. The law of diminishing returns states in this market, the sixth worker is the last one that should be hired. Diminishing returns is represented by a negatively sloped parabola.
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Illness caused Ricardo to retire from
Parliament in 1823, which later caused him to die on September 11 at the age of 51. To this day, Ricardo’s theory of comparative advantage and his extensive work with diminishing returns is taught in the majority of economic curriculum. From video games, such as World of Warcraft, and franchises as the NBA, Ricardo’s theories influence each walk of life.


Works Cited

Comparative Advantage. (n.d.). Retrieved November 28, 2010, from NetMBA.com: http://www.netmba.com/econ/micro/comparative-advantage/
David Ricardo. (n.d.). Retrieved November 28, 2010, from Wikipedia.org: http://en.wikipedia.org/wiki/David_Ricardo
David Ricardo: A Brief Biography. (n.d.). Retrieved November 29, 2010, from Victorianweb.org: http://www.victorianweb.org/economics/ricardo2.html
David Ricardo Quotes. (n.d.). Retrieved December 3, 2010, from Brainyquote.com: http://www.brainyquote.com/quotes/authors/d/david_ricardo.html
Diminishing Returns. (n.d.). Retrieved November 28, 2010, from Wikipedia.org: http://en.wikipedia.org/wiki/Diminishing_returns