what is absolute advantage theory?? explain theory by my map method

what is absolute advantage theory??
explain theory by my map method

Expert Solution

Theory of Absolute Cost Advantage

The theory of absolute cost advantage was propounded by Adam Smith (1776), arguing that countries gain from trading, if they specialize according to their production advantages. His doctrine may be understood with an example presented in the table below.

Labour Cost of production (in Hours)

	One Unit of Good A	One Unit of Good B
Country I	10	20
Country II	20	10

The above table shows that, in the absence of trade, both the goods are produced in both the countries, because of their demand in the domestic markets. The cost of production is determined by the amount of labor required in the production of the respective goods. The greater the amount of labor, the higher will be the cost of production, and the commodity will have a larger value in exchange. The pre-trade exchange of the ratio in Country I would be 2A = 1B and in Country II it will be 1A = 2B.

Rahul Sunny answered 7 months ago

Compare and contrast the theory of absolute advantage and the theory of comparative advantage. What is...

Compare and contrast the theory of absolute advantage and the theory of comparative advantage. What is the significancr of each in developing a nation's policies. Thanks

What is absolute advantage in trade theory? What is the comparative advantage on international trade? How...

What is absolute advantage in trade theory? What is the comparative advantage on international trade? How does absolute and comparative advantage lead to specialization? What are the benefits of comparative advantage? Calculations: The following represents the production possibilities in the following two countries. Canada Mexico Good X Good Y Good X Good Y 0 32 0 24 4 24 4 18 8 16 8 12 12 8 12 6 16 0 16 0 (a) Which country has a comparative advantage...

Discussion Questions: What is absolute advantage in trade theory? What is the comparative advantage on international...

Discussion Questions: What is absolute advantage in trade theory? What is the comparative advantage on international trade? How does absolute and comparative advantage lead to specialization? What are the benefits of comparative advantage? Calculations: The following represents the production possibilities in the following two countries. Canada Mexico Good X Good Y Good X Good Y 0 32 0 24 4 24 4 18 8 16 8 12 12 8 12 6 16 0 16 0 (a) Which country has a...

Explain Porter’s diamond of national competitive advantage and the theory of absolute advantage. Which one do...

Explain Porter’s diamond of national competitive advantage and the theory of absolute advantage. Which one do you think is more useful for managers and why?

Explain this difference between absolute advantage and comparative advantage. If a country has an absolute advantage...

Explain this difference between absolute advantage and comparative advantage. If a country has an absolute advantage in everything, can it still benefit from trade? Why or why not?

Explain how absolute advantage and comparative advantage differ.

how does comparative advantage differ from absolute advantage and Heckscher-Ohlin's theory

2. Explain the following theorems/phrases in the context of international trade theory. a. Absolute Advantage b....

2. Explain the following theorems/phrases in the context of international trade theory. a. Absolute Advantage b. Comparative Advantage c. Opportunity cost d. Factor-Price Equalization Theorem e. Factor Price Insensitivity Theorem f. Stolper-Samuelson Theorem g. The Leontief Paradox h. Increasing returns to scale i. Economies of scale j. Index of Intra-Industry Trade k. Love of variety

What does absolute advantage mean? What does comparative advantage mean? Explain which is the basis for...

What does absolute advantage mean? What does comparative advantage mean? Explain which is the basis for trade, and why.

What does absolute advantage mean? How do you calculate absolute advantage? What does comparative advantage mean?...

What does absolute advantage mean? How do you calculate absolute advantage? What does comparative advantage mean? How do you calculate comparative advantage? Does a country with the absolute advantage in the production of a good always have the comparative advantage producing that good? Explain your reasoning.

Question