BY DAVID RICARDO

1. Case study
Presentation
from International
Free Trade Theory

2. (18 April 1772 – 11 Sep 1823)
• He began his professional life as a broker
and financial market speculator. He got a
seat in the U.K. Parliament. He held his
parliamentary seat for the last four years
of his life.
• Perhaps his most important legacy is his
theory of comparative advantage, which
suggests that a nation should
concentrate its resources solely in
industries where it is most
internationally competitive and trade
with other countries to obtain products
not produced nationally.
About
David Ricardo…

3. The ability of a firm or individual to produce goods and/or
services at a lower opportunity cost than other firms or
individuals. A comparative advantage gives a company the ability
to sell goods and services at a lower price than its competitors
and realize stronger sales margins.
Law of Comparative advantage

4. TOPIC:
Medical Tourism - A Case Study
for the USA and India
By
Marc Piazolo
Professor of Economics
University of Applied Sciences Kaiserslautern
Graduate School of Management, Germany
marc.piazolo@fh-kl.de

5. Overview of the study…
• Their strong motivation is to illustrate that specialization and
free trade result in gains from international trade.
• This case shed’s some light on the economics of outbound as
well as inbound medical tourism. By adopting the model of
comparative advantage to the costs of medical surgeries, we
will show that trade between our two model countries – India
and the USA – is beneficial to both of them.
• The study focuses on these two countries due to their
prominence in worldwide medical tourism flows, as well as
due to their significant difference in per capita income.

6. General Trends in Medical Tourism
• Historically, patients of developing countries often journeyed
from less developed countries to medical centers in more
developed countries, where they received services that were
not available in their countries of origin - as medical know-
how and technology were missing.
• As technology and medical know-how dissolved to emerging
market countries, a new model of medical tourism – from rich
to poor countries – evolved over the last two decades.
• Today, one finds modern hospital facilities close to major
tourist attractions in countries like India, America etc.

7. Unit cost for different types of
medical procedures (in USD)

8. Medical travelers by point of Origin

9. Medical Services and Ricardian
Model of International Trade
In this section there has been a demonstration
of some empirical evidence for principle of
comparative advantage which in turn leads to
specialization and wealth creation for medical
tourism sectors in India and the USA.

10. Some assumptions Should be
Considered…as per David Ricardo
• Two countries, two goods or services
• Equal size economies
• Full employment
• Constant opportunity costs
• Perfect mobility of factors of production
within countries
• Negligible transport cost
• Perfect competition

11. Unit costs for dental services in India and the USA
Maximum Output per Day for India and the USA
The USA has absolute disadvantages in both Dental Implants (DI) and
Dental Crowns (DC), measured by larger costs of production.
TABLE-1
TABLE-2

12. Production possibilities frontier
for India and the USA

13. Assumption Taken…
The complete absence of trade is called Autarky, and in this situation,
both India and the USA are limited in their consumption to the goods
that they produce at home. Suppose autarky prevails, we have
assumed both countries divide their respective production capacities
equally between DI and DC production.
India would choose to produce and consume nine units of DI and 40
units of DC. The total outcome in autarky is summarized in above
Table, where the world production and consumption is the sum of
India and the USA production and consumption, 18 DI and 65 DC,
respectively.
TABLE-3

14. Above table illustrates how both countries gain from specialization and
free trade. As a result of comparative advantage and international trade,
the USA produces 18 units of DI, but no DC, and India produces 80 units
of DC, but no DI. By comparing Table 4 with Table 3, it is evident that
specialization promotes wealth creation measured by increase in total
world production.
CONTINUE…
TABLE-4
60 Seconds Video on Comparative Advantage…Next

15. QUESTIONS…
• Do International Trade really brings down the
cost? How?
• Do you think India & USA should trade?
• Do International Trade brings comparative
advantage for a country? How?
• Are Comparative Advantage and Competitive
Advantage the same?
• Can you give any example related to this
topic?

16. SOURCES…
• http://cb.hbsp.harvard.edu/cb/search/David%2520ricar
do%2520international%2520trade%2520theory?Ntk=HE
MainSearch&N=0
• http://www.uni-buda.hu/journal/Piazolo_Zanca_27.pdf
• Academia.edu | Documents in David Ricardo -
Academia.edu
• http://www.levyinstitute.org/pubs/wp_635.pdf