This article gives a run down of how Ricardo developed his economic theories. It discusses the impact of his theories on the economy and how the theories can be applied to economics.
The article discusses how David Ricardo made predictions on how comparative advantage and his theory of development would eventually lead to less inequality in incomes within countries. These predictions combined with the theories were accurately experienced during the first wave of globalization. Economists now are seeing that these theories need to be modernized because globalization is not having the same effect on income inequality and economic growth as it was predicted back when Ricardo was alive.
Ricardo developed this theory based upon comparative advantage and specialization. This theory was a breakthrough because it set up a way in which trade could be seen as more effective given that if there is trade between two countries, it is easier for them to reach point E (on the diagram, which means the best amount of production). It was also important because it included the comparative advantage theory that was a major breakthrough in economic thought. Generally the criticisms to this theory of trade sprout out from the argument that since different countries have different economies, then not necessarily would demand and supply be met.
Ricardian Equivalence is the theory that if a government tries to stimulate the economy by increasing deficit spending, demand will remain unchanged. This is mainly because people keep their excess money for future tax increases. The theory pretty much states that regardless of the government increasing deficit spending or increasing taxes demand will always remain unchanged. This theory has received backfire because it lacks in real world application and depends on a perfect economy without many variables.