Posted: August 7th, 2022

Comparative advantage and the gains from trade | international economics

Adam Smith, in his book The Wealth of Nations (1776), suggested a basis of trade, which is known as an absolute advantage. Later, David Ricardo provided a modified framework, known as a comparative advantage, which became the basis of modern views of international trade. What are the differences between an absolute advantage and a comparative advantage? Why is a comparative advantage more important than an absolute advantage in explaining international trade? What are the causes of a comparative advantage? What are the gains from trade due to a comparative advantage? Discuss in detail.

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