The trade theory that first indicated importance of specialization in production and division of labor is based on the idea of theory of absolute advantage
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Autarky: A state of affairs in which countries do not trade, and only acquire goods or services from within The Terms Page 3 Absolute advantage is easy to
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However, absolute advantage in the production of a commodity is neither necessary nor sufficient for mutually beneficial trade For example, a country may be
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5 Smith's Theory of Absolute Advantage and Trade between Developed and Underdeveloped Countries 77 5 1 The England-Portugal Example Re-Examined
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Which set of countries has a comparative advantage for manufacturing low quality cars? 2 In Australia one unit of labor can produce 25 computers or 25 bushels
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A country or person can have an absolute advantage in both goods or activities, and yet still gain from trade by specializing in the good or activity in which
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Absolute and Comparative Advantage EXAMPLE: Suppose that a worker in the U S can produce either 120 tons of wheat or 8
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I Absolute versus comparative advantage We saw that the United States has an absolute advantage in the production of both goods (in terms Example #1
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promote specialization and, in turn, efficiency and comparative advantage protectionism—or restrictions on trade—is introduced, with examples such as
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Countries specialise in things they can produce efficiently, for example in Latin America they produce bananas more efficiently than we do in the UK By
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