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The Legacy of Adam Smith and David Ricardo





Economists have long understood the principle of comparative advantage. Here is how the great economist Adam Smith put the argument:

It is a maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbours, and to purchase with a part of its produce, or what is the same thing, with the price of part of it, whatever else they have occasion for.

This quotation is from Smith’s 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations, which was a landmark in the analysis of trade and economic interdependence.

Smith’s book inspired David Ricardo, a millionaire stockbroker, to become an economist. In his 1817 book, Principles of Political Economy and Taxation, Ricardo developed the principle of comparative advantage as we know it today. His defence of free trade was not a mere academic exercise. Ricardo put his economic beliefs to work as a member of the British Parliament, where he opposed the Corn Laws, which restricted the import of grain.

The conclusions of Adam Smith and David Ricardo on the gains from trade have held up well over time. Although economists often disagree on questions of policy, they are united in their support of free trade. Moreover, the central argument for free trade has not changed much in the past two centuries. Even though the field of economics has broadened its scope and refined its theories since the time of Smith and Ricardo, economists’ opposition to trade restrictions is still based largely on the principle of comparative advantage.

 

B.Translate from Russian into English.



1. Сравнительное преимущество – основополагающий принцип свободной торговли.

2. Преподаватель объяснил разницу между видимым и невидимым экспортом и импортом.

3. Всемирная торговая организация была учреждена в 1995 году в целях развития свободной торговли.

4. Ограничение внешней торговли может касаться не только экспорта, но и импорта.

5. Введение ограничений на импорт иностранной продукции – средство защиты отчественного производителя, исползуемое правительствами многих стран.

 

LISTENING

 

You will hear Ajit Singh, Professor of Economics at Cambridge University, talking about free trade and unemployment.

A.Listen to the first part of the interview, and then listen a second time and complete the following sentences.

1. Formerly, the less developed countries were against free trade because …

2. Countries like South Korea and Malaysia are competitive today because they’ve been able to …

3. Free trade is disruptive; in other words …

4. The advantage of free trade is that …

5. People in industrial countries can only put up with the disruption caused by free trade if …

B.Listen to the second part of the interview and answer these questions.

1. What would African countries need to do if they wanted to develop a car industry?

2. What does Ajit Singh say could lead to full employment in the rich countries?

3. What does he say will be the consequence if mass unemployment continues?



4. Does he foresee an end to mass unemployment?

SPEAKING

A.

Read the dialogue, identify how each speaker makes himself sound ‘nice’. Act the conversation out.

Rusconi: Jupiter Products. Tony Rusconi speaking.
Garcia: Hello, this is Al Garcia.
Rusconi: Hello, Mr Garcia. How are you?
Garcia: Fine, thanks. I’m phoning about our delivery next week.
Rusconi: Ah, yes, good. I was just about to call you. Er … could you tell me when we can expect the consignment to arrive in our warehouse?
Garcia: Yes, as far as I know, the trucks should arrive late Thursday or early Friday, it depends on traffic and weather. Er … what time will you accept deliveries?
Rusconi: The latest time we can start unloading is 4 pm, but we can start as early as 7.30 am. Could you tell me whose trucks are delivering the goods?
Garcia: Yes, certainly. Two of them will be ours, and the others are on hire from Alpha Transport.
Rusconi: Let me just make a note of that. Can you tell me how you spell Alpha?
Garcia: Yes, of course. It’s A-L-P-H-A.
Rusconi: Fine. And I’d also like to know how many trucks will be coming.
Garcia: Ah … there will be five altogether.
Rusconi: Can you tell me if they will arrive on the same day?
Garcia: I’m not entirely sure, but as two will be setting off half a day early, they should arrive Thursday. The other three will arrive towards midday Friday. Could you let me know how long it will take to unload each truck?
Rusconi: Yes, each truck will take about an hour. I think you should know that we can’t unload more than two trucks at a time.
Garcia: I see, well, thanks for letting me know that. I wonder if you can tell me what’ll happen if one of the trucks arrives later and can’t be unloaded on Friday? Do you know if it can be unloaded on Saturday?
Rusconi: I’m afraid I don’t know, it might have to wait till Monday. You’d have to ask our warehouse manager about that.
Garcia: Could you just remind me what his name is again?
Rusconi: Yes, of course. He’s Mr Ferrari.
Garcia: Ah, and can you tell me his number?
Rusconi: Yes, it’s 345 9800 extension 71.
Garcia: Good. Thank you very much. It’s nice to talk to you. Goodbye.
Rusconi: Bye now, Mr Garcia.

 

B.

Role-play

Divide into two groups – economists and the government.

The government use arguments to advocate trade restrictions.

The economists prove the benefits of free trade.

C.

1. Do you agree that people’s tastes today are more homogeneous? Why? Which products do you know of that are found in most parts of the world today?



2. What does your country export and import? What are the reasons for this?

3. Which countries are your major trading partners?

4. Which ‘uneconomic’ (or internationally uncompetitive) sectors, if any, do you think should be protected in your country?

5. Would total free trade result in the creation of jobs, or in unemployment, in your country?

 

VOCABULARY

absolute advantage – абсолютное преимущество

comparative advantage – сравнительное преимущество

customs duty – таможенная пошлина

embargo n – юридический запрет торговой деятельности

export n – экспорт

protectionism n – протекционизм (политика государств направленная на ограждение национальной экономики от иностранной конкуренции)

restriction n – ограничение

specialization n – специализация

tariff n – тариф пошлина расценка

 

GLOSSARY

 

· Visible exports and visible imports – trade in goods such as food, raw materials, and manufactured goods.

· Invisible exports or invisible imports –trade in services such as banking, insurance and tourism.

· Absolute advantageis the ability of a country to produce a good using fewer resources than another country.

· Comparative advantageis the ability of a country to produce a good at a lower opportunity cost than another country.

· Protectionism is the government’s use of embargoes, tariffs, quotas, and other restrictions to protect domestic producers from foreign competition.

· Free tradeis a system which allows certain countries to buy and sell goods from each other without any financial restrictions.

· Embargois a law that bars trade with another country.

· Tariffis a tax on an import.

· Quotais a limit on the quantity of a good that may be imported in a given time period.

· WTO –World Trade Organization.


GLOBAL MARKET AND DEVELOPING NATIONS

 

DISCOVERING CONNECTIONS

 

1. How would you define global economy, global market?

2. Do you agree that countries should be divided into industrialized and developing? Give your reasons.

3. What international economic organizations do you know? What are their functions?

4. What is globalization? What do you think about it?

 

READING

 

Text 1

The author organizes the following reading by considering industrialized nations, newly industrialized nations, developing nations and less developed nations. While reading pay attention to the problems facing different types of countries.

The World’s Economies

Economists classify the world’s economies as: industrial or developed nations (IN); newly industrialized nations (NIC); developing nations or less developed nations (LDC). Each of these types of countries has fairly specific characteristics, and economic issues.

 








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