Trade is not based on absolute advantage; rather it is based on comparative advantage.

Question

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Trade theory, as proposed by David Ricardo, is based on comparative advantage - the idea that even if one country has an absolute advantage in producing all goods, both countries can still gain from trade if they specialize in producing and exporting the goods in which they have a comparative advantage and importing the goods in which they have a comparative disadvantage.

Trade Is Not Based on Absolute Advantage; Rather It Is