In a world envisaged by David Ricardo, nations trade freely according to relative efficiency. Each produces the goods it can make at the lowest opportunity cost and exchanges them for those it cannot. Under such conditions, trade balances are naturally in equilibrium, and what one country gains through importing it gives back through exporting. The gains from specialization are shared across borders and goods, and the system functions symmetrically. To understand how these gains are distributed, economists measure welfare through consumer and producer surpluses. Consumer surplus is the difference between what ... (full story)