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Ricardo’s Theory of Distribution and Growth David Ricardo (1772-1823) “To determine the laws which regulate this distribution, is the principal problem.

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Presentation on theme: "Ricardo’s Theory of Distribution and Growth David Ricardo (1772-1823) “To determine the laws which regulate this distribution, is the principal problem."— Presentation transcript:

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2 Ricardo’s Theory of Distribution and Growth

3 David Ricardo (1772-1823) “To determine the laws which regulate this distribution, is the principal problem in Political Economy.”

4 Ricardo’s Theory is Important for the Following Reasons: Provides us with vision of the future Explains why in Ricardo’s view investment opportunities decline Explains in simple terms the reason for rent

5 Historical Backdrop: Corn Laws Corn Laws –imposed a tariff on the importation of agricultural products British Parliament was dominated by the landowning classes

6 Distribution and Production Ricardo sought to show how changes in distribution affect production Ricardo contended that as the economy grows, rents rise, squeezing profits As profits are squeezed, economic growth declines

7 Assumptions Say's law--supply creates its own demand, and whatever is saved is invested (accumulated). Labor theory of value, prices are proportional to the quantities of embodied labor. Agriculture is labor intensive, manufacturing is capital intensive.

8 Land is fixed and differs in fertility three classes

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10 Rent Return to an factor of production for which there are no substitutes or no “good” substitutes Examples: land, a particular location, a living legend, etc.

11 Ricardian Rent Ricardo defined rent as follows: –different between output on the most and least fertile land in cultivation –difference between costs of production on the most and least fertile lands in cultivation

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22 The End of Capitalism?

23 Implications? Why was Ricardo’s position regarding the corn laws? Explain. What policies did Ricardo recommend? What happens to economic growth over time as the population increases? Why? How does Ricardo’s theory reflect his class interests?


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