Question

Discuss the theory of absolute advantage and how it explains the basis for trade between nations.

Answer 1

Absolute advantage theory: - The Absolute advantago theory that a nation has absolute advantage when it can produce a larger amount of a good for the same amou of inputs as can another country It's can can had Boduce the same amount of a good or services using fewer Input than another country that country should concentrate on poduction of goods in which held an absaluto advantage It's a producer can produce a good of in greater quantity for the same pice, and same quantity on Low price than other produces Limitations of Absolute advantage theory : Assumes that tromsportations Expances also either non existent this may not always hald good or services Absalute advantage is possible for a nation not to have absaluto advantay in anything

on The absaluto advantage depends on other Cast But the comparative advantage defends relative costs as The practice countries do not specialize complete specific. and there limits is many to TRADE between Nation! more n Trade between two or mero Nation, it's called international Trade. in Trade between Nation means exchange of services of goods along international borders. It's when It's when possible than trade Allow to a greater competition and Competitive pricing in the market The competition Result i t more affordable Product for the customer. when the exchange of services than the world economy also affects. Because supply and demand making goods and services provides on globally customers under the the division Trade of between labour nation than and specialization.

9 become than the then the Consumes International Trade have multiple choices. when become increase the nation trade between employment. than the 9 this the this is also in the optimum condition the living standare peolle is also increase. trade the local products quality increase trade the resources are becomes allocation and utilization of resources 9