Absolute Advantage – Trade Theories

Posted by mjmedlock on June 11, 2014 in international economics |

Absolute advantage is a theory of trade that was first developed by Adam Smith. The theory demonstrates that countries can benefit from specializing in producing and trading goods in which they have an absolute advantage.

Smith identified the sources of absolute advantage as coming from efficiency in production and/or natural advantages, such as climate or geography.

The video below gives a brief overview of the topic, including a simple calculation to demonstrate the concept.



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