International Business news analysis Essay Example | Topics and Well Written Essays - 500 words

International Business news analysis - Essay Example e art† mathematical models currently used by economists which presupposed that household and ideal firm optimize their behavior with perfect rationality. In the end they revert back to Ricardian and Smith’s principle as a more plausible law to govern the market and international trade. Adam Smith originally meant that the mechanism of the invisible hand is a result of the market settling the distribution of goods and the prices between what the producers want to produce and what the consumers chooses freely what to consume within a given economy and across economies. As a result, producers will have to create goods that are cheaper to produce undermining competition and gain market share. On a bigger picture, Adam Smith’s invisible hand is comparable to David Ricardo’s idea of Comparative Advantage which is the guiding principle behind globalization of free trading across economies. Ricardo posited that countries will be better off if certain goods and services will be exported by countries that can produce them most efficiently. This is the main principle of outsourcing where a poor country will naturally have a cheap labor serving as its comparative advantage and would be willing to work for wages lower than those their rich counterpart countries which may have been more expensive if done in other countries. As a result, industry will naturally move to these countries as they make more profits by discounting on the labor cost as afforded by the poor country. This is the invisible hand at work in international trade whereby the invisible hand will â€Å"guide† and regulate international trade in the most beneficial manner by directing goods to be produced by more efficient countries so that everybody can benefit from it at a lower price and higher quality. The article however proposed a scenario what if invisible hand and its mechanism of comparative will no longer work because some economists thought of some brilliant mathematical models that