Most trade today is more likely to be explained by the Theory of Comparative Advantage than by the Theory of Absolute Advantage.

Question

Quizplus · Accepted Answer

The Theory of Absolute Advantage suggests that a country should only produce and trade goods that it can produce more efficiently than any other country. However, the Theory of Comparative Advantage suggests that a country should specialize in producing and exporting goods that it can produce relatively more efficiently compared to other goods, even if there are other countries that can produce those goods more efficiently overall. This is because every country has some degree of comparative advantage in producing some goods, which creates opportunities for specialization and gains from trade. Therefore, the Theory of Comparative Advantage is more relevant to modern trade patterns, where countries specialize in producing and exporting goods in which they have a comparative advantage, rather than an absolute advantage.

Most Trade Today Is More Likely to Be Explained by the Theory