Discuss why you think comparative advantage has become the fundamental and accepted theory of trade.
Comparative advantage has become the fundamental and accepted theory of trade.
In the Mercantile period, from the 16th through the end of the 18th centuries, trade was driven by a need to accumulate gold and silver. Nations worked to restrict imports and drive exports. With the advent of the Industrial Age, classical economists began to look at trade and international commerce in a different light. In his seminal work The Wealth of Nations, Adam Smith discussed the idea that the basis of trade could be seen in light of what he called absolute advantage. His contemporary, David Ricardo, took a different and modified approach and laid out a framework called comparative advantage. This latter theory is the basis for all modern views of international trade.
For this Discussion Board, complete the following:
Define absolute and comparative advantage.
Compare the two views on trade.
How does the concept of opportunity cost factor into comparative advantage?
Discuss why you think comparative advantage has become the fundamental and accepted theory of trade. Provide concrete examples.