hen comparative advantage is used; essentially, comparative advantage comes down to specialization, and Ricardo suggests that producers should produce those goods which they can do so most cheaply, but that all members of an economy must contribute in order for the economy to reap the greatest benefit. In the example above, if both farmers have the capacity to grow 1000 bushels of corn and 2000 bushels of wheat, and the neighbor divides his farm in half, growing corn in one half and wheat in the other, the total amount of foodstuffs will be 500 bushels of corn and 1000 bushels of wheat and the first farmer's land will lay fallow. According to Ricardo, this does not result in the greatest benefit to the economy.
Ricardo would say that growing wheat instead of corn costs the neighbor gives up $2 per bushel (the difference between the corn and wheat). Growing wheat causes the first farmer to give up only $1 per bushel. Ricardo would then say that the two farmers should specialize in the product in which they have comparative advantage (although the neighbor clearly has the absolute advantage in both cases). Thus the first farmer would grow wheat (since he gives up less than the neighbor) and the neighbor would grow corn. This results in a total harvest of 1000 bushels of corn and 2000 bushels of wheat. The fact that one neighbor has lower costs than the other is the comparative advantage; the cost of selecting one product over another is the opportunity cost ("Miracle," 1996, p. 61).
Ricardo held that wealth is based on land ownership and the profits that accrue to landowners as a result of selling the goods produced on that land. In the largely agrarian environment in which Ricardo lived, this is accurate. Today, Ricardo supporters would expand his argument to include any capital in addition to land, such as equipment or technology, which produces goods and from which profits can be extracted. Because of this relationship ...