UGC NET COMMERCE November 2017(Paper-II) Q48
0. Who among the following has given Absolute Advantage Model of international trade?
- Option : A
- Explanation : One of the most important theories in international business is comparative advantage model. The theory foundation goes up to Adam Smith, a Scottish economist. In his book, Wealth of Nations, he argued that trade is not a zero-sum game. He illustrated how both parties can benefit from trading. His argument is labelled as the absolute advantage theory. The logic of absolute advantage is simple and intuitive. If country X can produce a set of goods with lower costs or higher productivity than country Y, and meanwhile, country Y can produce another set of goods with lower costs or higher productivity than country X, the trade of these goods benefit both country X and country Y. But what if a country has all or none absolute advantages in all sets of goods?
Thus, Adam Smith’s absolute advantage theory was superseded by the comparative advantage theory in the 1800s.
